A $100 Drop in a $20,000 Bucket

by Reihan Salam

The centerpiece of President Obama’s new middle-class economics is a plan to raise taxes on high-income households and big banks by $320 billion over the next decade to finance a slew of new middle-class tax breaks and spending programs. We can debate the merits of each discrete proposal. Many of us, including Andrew P. Kelly of AEI, have already discussed why his new community college initiative is a step in the wrong direction. Yet not all of Obama proposals are wrongheaded. For example, his proposed bank tax, which bears a resemblance to a levy that Dave Camp, former chairman of the House Ways and Means Committee, included in his 2014 tax reform, could do some good, particularly if it were slightly tweaked. Of course, the agenda the president is largely symbolic. In The Week, James Pethokoukis reminds us that the White House could finance all of its new spending, direct and indirect, by adding 2 percent to debt accumulation over the next decade. That’s not nothing, but it’s not a crippling burden. By swapping tax hikes on the rich for spending on the middle class, Obama is putting a marker down: redistribution is his top priority, and he intends to tout its virtues for the rest of his presidency – and presumably for many more years after that. But how much is this latest round of redistribution likely to achieve?  

Consider a new column from Eugene Steuerle of the Urban Institute, a straight-shooting centrist who has a knack for demystifying complex policy questions. To put the new Obama plan in context, Steuerle observes that federal, state, and local governments already spend, both directly and on various tax subsidies, over $20,000 per person per year, an amount that is set to soar as the economy grows and as baby boomers retire. Essentially, the president is calling for increasing this amount by a bit more than $100. Now, it may well be true that an extra $100 per person per year is all that stands between us and middle-class nirvana. But do you really think anyone in the White House believes that to be true? Ron Haskins of the Brookings Institution has been praising the White House for investing more resources in evidence-based policy, and he documents that the vast majority of social expenditures are devoted to programs that haven’t really been rigorously evaluated. Could it really be that we can’t find $100 in that $20,000 or so that we already spend that can’t be better directed? I’d love to hear Obama explain why not. 

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