Is The Welfare State Sustainable?

Jan 4 2013 @ 11:04am

A few days ago, Douthat argued that the lesson of the fiscal cliff "negotiations seems to be that Democrats are still skittish about anything that ever-so-remotely resembles a middle class tax increase, let alone the much larger tax increases (which would eventually have to hit people making well below $100,000 as well) that their philosophy of government ultimately demands." Millman sees things differently:

There is clearly substantial opposition within both the Democratic and Republican parties to raising income tax rates on anyone but the wealthy. Within the Democratic coalition there’s debate about who constitutes the wealthy; within the Republican coalition, a majority opposes raises tax rates on anybody. But we’re still talking about income tax rates. If we now move to tax reform, that leaves open the possibility of loophole-closing tax reform that raises revenue without raising rates. And it leaves open the possibility of new consumption taxes (a VAT, or a carbon tax, or a series of smaller Pigovian taxes). For that matter, the expiration of the payroll tax holiday was a tax hike on the middle class that just passed with bipartisan support. These kinds of taxes aren’t going to be popular. But they are not the same as raising income tax rates. The real question remains whether Republicans would be willing to consider additional revenue as part of a tax reform package.

Yglesias' perspective:

[E]ven with a Democratic President in the White House who's eager to cut spending on retirement programs they still don't get cut. That's how robust the welfare state is. Recall that the last time we had a Republican President in the White House what he did was make Medicare benefits significantly more generous. Recall also that Mitt Romney ran on a pledge to increase Medicare benefits for ten years and then offset that by cutting benefits for younger people in the future. That's how robust the welfare state is. Concern trolling about Democratic senators' willingness to blink on taxes is neat, but all we're seeing again and again is confirmation of Paul Pierson's thesis from Dismantling the Welfare State?, namely that dismantling the welfare state is incredibly difficult.