Last week I had the opportunity to watch President Barack Obama work a room full of members of Congress and budget experts at the White House. He bantered easily among Republicans and Democrats, and laughed warmly as he took up Senator John McCain’s suggestion that he forgo a costly upgrade on his presidential helicopter. And yet Obama’s calm demeanor couldn’t disguise the enormity of the decisions he faces.

Most Americans living today have never witnessed such an epic battle over our nation’s priorities. The economic meltdown has forced us to grapple with momentous choices over the role of government and how to pay for it. In essence, Obama’s challenge is to reopen the doors to fair and effective government that conservatives shut when Ronald Reagan began prioritizing private markets over the public interest three decades ago.

So far, Obama has managed to open all but one of the big doors, at least a crack. On the revenue side, he has signaled the end of the era of tax cuts for the rich and opened the door to tax polluters. On the spending side, he wants health care for everyone, but by cutting costs at some private firms. And he wants to cut subsidies for wealthy corporations. The one door that Obama has unlocked but not yet opened is the budget-busting category of military spending. Obama says he wants to cut waste in defense contracts and will save some money by bringing troops home from Iraq, but he still is recommending an increase in the Pentagon’s overall budget.

How far each of these doors gets opened depends on all of us. If we are organized, any of these changes could be monumental. If we aren’t, the changes, while in the right direction, will be merely incremental. On the military, we need a huge push to shift the debate towards the major cuts we need.

The White House “fiscal responsibility” summit I attended last included 110 experts and members of Congress. I was honored to attend and thrilled to see more than a handful of other progressives in the room. The summit was arranged to address the giant problem the government faces as tax revenues (after decades of cutting rates on the rich) fail to keep pace with rising public spending. Many are rightly worried that we have created debts that will be a huge burden to the next generation. Obama has pledged to cut the annual deficit in half in his first term. At the White House summit, Obama and almost all agreed that the biggest culprit in runaway spending is out-of-control health care costs. All agreed that the nation can get health care to everyone and do it much more cheaply. It’s clear that health care, along with the economy, will dominate the next three months of the Obama administration agenda (followed by energy and climate issues).

Some at the summit, led by the billionaire Peter Peterson, have decided to use the fiscal crisis as a way to attack the three main government entitlement programs: Social Security, Medicare, and Medicaid. Peterson, along with many Republicans and some more conservative Democrats, wanted the summit to create a bipartisan commission to examine ways to cut back on these entitlements. Happily, the Obama administration heard the calls from progressives that these programs are vital to the elderly and poor, and hence they are not setting up a commission. But, in Obama’s speeches and in the outlines of his budget that he released last week, he’s seeking other ways to cut costs and raise revenues.

Progressives have a lot at stake in these debates. In addition to entitlements, there’s only one other giant item in the government budget: the military. After a half century of the government catering to defense contractors and what my colleague Marcus Raskin coined “the national security state,” there are many places to cut a defense budget that weighs in at over $600 billion a year. Representative Barney Frank (D-MA) has called for cutting the military budget by 25 percent by ending the Iraq War and by implementing recommendations from a report by my Institute for Policy Studies research fellow Miriam Pemberton and Lawrence Korb of the Center for American Progress to cut $60 billion in obsolete weapons systems. The cuts could be much deeper if the Obama administration were to shut down many of our overseas bases and withdraw responsibly from Afghanistan instead of stepping up the U.S. military operations there.

Obama has also opened some big doors on the revenue side of the budget question. He’s calling for increases in five areas, although none would begin immediately:

  • Raise tax rates for those with incomes over $250,000 from 35 percent back to rates from the beginning of this decade (39.6 percent);
  • Increase the capital gains tax rate back to 20 percent;
  • Keep the estate tax intact;
  • Close corporate loopholes; and
  • Tax hedge fund managers at 35 percent, not 15 percent.

This is a great start, but the nation will need more revenues to fuel the recovery and make health care work for all. IPS has laid out seven proposals that could boost annual tax revenue by more than $500 billion by taxing those with the greatest capacity to pay and by a new tax that would discourage financial speculation.

Between the working poor, small business owners and progressive wealthy individuals, there are the makings of a formidable force for fair taxes. It was fair tax policy that helped create the middle class in the 1950s. Under President Dwight D. Eisenhower, the top tax rate was 91 percent. When I mentioned this at the summit, Treasury Secretary Timothy Geithner chuckled and asked if I was suggesting that it was a good thing that taxes were so high then. Yes, I said: There was an agreement in society that the wealthy needed to pay more and that the whole society benefited through programs like the GI Bill of Rights. I reminded Geithner that there are wealthy people today like Warren Buffet and Bill Gates, Sr. and Netflix CEO Reed Hastings, who understand they need to pay more.

I also asked him to consider a financial transaction tax, an idea Obama spoke in favor of on the campaign trail. A modest tax on the trade over every stock or other financial product — even if it’s just a penny on every $4 traded — could actually raise revenues and discourage the kind of speculation that created the mess in the first place.

The tax experts at the summit agreed that we will need new sources of revenue in the years ahead. Some favored a new value-added tax (VAT), which invariably hits the poor the hardest. Many of us favor a carbon tax, which would tax emissions, which of course have a negative impact on society. Last week, Obama suggested that he favors an indirect carbon tax through a “cap and trade” system that offers too much power to the very private markets that have so stunningly failed us over the past year. But count on Obama to spark a lively national debate on this topic.

In other words, get ready for epic battles. We can change national priorities. We can cut military spending, create a fair tax system where the wealthy pay their share, win universal health care, and make the biggest polluters pay for climate change. But in each of these fights, strong corporate interests will fight to minimize change. Obama has opened the doors. Whether we can blow on through depends on us and our ability to organize.

John Cavanagh is the director of the Institute for Policy Studies, a member of the New Economy Working Group, and co-author of Development Redefined: How the Market Met its Match (Paradigm, 2008).

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