My Monday column on taxes met, shall we say, with a certain amount of skepticism. I argued that Obama needs to break his promise on taxes, and raise them once the recovery is solid for middle-class Americans as well as for the rich. Many people have written comments or sent me emails that say, not always in polite terms, "What about spending?"
Fair point. Preoccupied with the debate over extending the Bush tax cuts, and confined to 900 words, I neglected to mention spending cuts. That was wrong. People who don't read everything I write -- there must be some -- will be unaware that I see spending cuts as necessary too. I think both will be needed to get the long-term deficit back under control. Entitlement reform is indispensable.
Curbing spending on Social Security is relatively easy -- technically, I mean, not politically. The retirement age should be raised. Getting a grip on long-term Medicare outlays, which is the real core of the problem, is much more difficult. I'm not optimistic that the Democrats' health-care reform, which I support for other reasons, is going to drive down costs. More likely the opposite.
I agree that spending should be part of the solution; indeed, must be part of the solution. The current-policy path of Medicare, Medicaid, and Social Security taken together is such that higher taxes by themselves will not suffice -- even if, as I advocated in the column, the base of the income tax is broadened and new taxes (such as a carbon tax or a VAT) are added in. The more diversified the remedies, the less drastic, hence less painful, individual tax hikes and spending cuts will need to be.