Obama Says More Tax Revenue Is Necessary

During the fiscal cliff debate, President Obama was straightforward in discussing his solution on how to further reduce the budget deficit: more taxes are needed.  He criticized the idea that “deficit reduction is only a matter of cutting programs.”  But his criticism neglects to mention that much of the tax revenue raised by higher tax rates on high-income earners (which go into effect in 2013) will go to new spending, not deficit reduction.  According to an Investor’s Business Daily article, the Congressional Budget Office’s analysis of the fiscal cliff legislation estimates that over half of the new tax revenue will go towards increased spending.

While the President desires higher taxes, he may face a political problem seeking them in his second term.  He has already raised taxes on “the rich” twice- once through the fiscal cliff legislation and once through his administration’s health care law.  But taxing the rich alone cannot fund the deficit, and taxing the middle class is politically difficult after years of portraying the Bush tax cuts as breaks only for the rich.  The President and Congressional Democrats may face the possibility that further tax revenue requires an ever-expansive definition of “rich,” which could cause intra-party political tension by subjecting many affluent urban Democrats to increased taxes.