What a surprise - taxing "the rich" doesn't work
xmacro
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Surprise surprise!! Taxing the rich doesn't work. Why? Because even if you taxed them at 100%, there isn't enough money to pay for this years budget deficit, to say nothing of paying down the debt - this doesn't change whether the economy is in a boom or a bust cycle - there just isn't enough money at the top to pay for everything. Turns out the real money is in the middle class - prepare for new, hidden taxes. From the Wall Street Journal:
Where the Tax Money Is
Obama targets the middle class while pretending to tax only the rich
A dominant theme of President Obama's budget speech last Wednesday was that our fiscal problems would vanish if only the wealthiest Americans were asked "to pay a little more." Since he's asking, imagine that instead of proposing to raise the top income tax rate well north of 40%, the President decided to go all the way to 100%.
Let's stipulate that this is a thought experiment, because Democrats don't need any more ideas. But it's still a useful experiment because it exposes the fiscal futility of raising rates on the top 2%, or even the top 5% or 10%, of taxpayers to close the deficit. The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle classbecause that's where the big money is.
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Consider the Internal Revenue Service's income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayersthose with salaries, dividends and capital gains roughly above about $380,000paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the "millionaires and billionaires" Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.
Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That's five times Mr. Obama's 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.
We recognize that 2008 was a bad year for the economy and thus for tax receipts, as payments by the rich fell along with their income. So let's perform the same exercise in 2005, a boom year and among the best ever for federal revenue. (Ahem, 2005 comes after the Bush tax cuts that Mr. Obama holds responsible for all the world's problems.)
In 2005 the top 5% earned over $145,000. If you took all the income of people over $200,000, it would yield about $1.89 trillion, enough revenue to cover the 2012 bill for Medicare, Medicaid and Social Securitybut not the same bill in 2016, as the costs of those entitlements are expected to grow rapidly. The rich, in short, aren't nearly rich enough to finance Mr. Obama's entitlement state ambitionseven before his health-care plan kicks in.
So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks.
This is politically risky, however, so Mr. Obama's game has always been to pretend not to increase taxes for middle class voters while looking for sneaky ways to do it. His first budget in 2009 included a "climate revenues" section from the indirect carbon tax of cap and trade, which of course would be passed down to all consumers. Such Democratic luminaries as Nancy Pelosi have often chattered about a European-style value-added tax, or VAT, which from a liberal perspective has the virtue of applying to every level of production or service and therefore is largely hidden from the people who pay it.
Now that those two ideas have failed politically, Mr. Obama is turning as he did last week to limiting tax deductions and other "loopholes," such as for mortgage interest payments. We support doing away with these distortions too, and so does Mr. Ryan, but in return for lower tax rates. Mr. Obama just wants the extra money, which he says will reduce the deficit but in practice will merely enable more spending.
Keep in mind that the most expensive tax deductions, in terms of lost tax revenue, go mainly to the middle class. These include the deductions for state and local tax payments (especially property taxes), mortgage interest, employer-sponsored health insurance, 401(k) contributions and charitable donations. The irony is that even as Mr. Obama says he merely wants the rich to pay a little bit more, his proposals would make the tax code less progressive than it is today.
Mr. Ryan isn't proposing controversial entitlement reforms because he likes pointless political risk, or because he likes being berated to his face from a front row seat, as he was on Wednesday. Medicare and Medicaid spending are consistently growing two to three times faster than the rest of the economy, while Medicare's cash-in-cash-out financing model means that seniors collect far more in benefits than they paid in taxes over their working lifetime. The entitlement state was designed for another era.
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Mr. Obama's speech was disgraceful for its demagoguery but also because it contained nothing remotely commensurate to the scale of the problem. If the President had come out for a large tax on the middle class, like a VAT, then at least the country could have debated the choice of paying for the government we have or modernizing it a la Mr. Ryan so it is affordable.
Instead the President will continue targeting the middle class for tax increases to pay for an entitlement state on autopilot, while claiming he only wants to tax the rich. Oh, and we almost forgot: Happy Tax Day.
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Comments
"Taxing the rich" may not work, but 1998 - 2008 pretty much proved that NOT "taxing the rich" was worse. Is Medicare / Medicaid out of control, umm, yeah. But, when the money is spent on these things, every single person in every single state has benefited, because your parents, grandparents, family members with serious medical problems all have been helped. Think about it, hospitals, doctors, nurses, emergency workers, and all the ancillary staff that accompany these services are found in every state, city, town, county, province, parish in Our Country.
Perhaps there is another giant government expenditure which could be cut? Hint: the majority of the money spent by this "program" goes only to benefit a few cities here, and helps build the kind of services we'd like to have here, overseas instead! Not that I'm averse to helping those in need, or spreading Democracy, but I'd prefer that we do it only when we can afford it, and only in ways that we can afford.
"If you do not read the newspapers you're uninformed. If you do read the newspapers, you're misinformed." -- Mark Twain
WELCOME TO AMERICA!!!!! LOLOLOLOL.
- yeah, a lot of people have benefitted from these entitlements, but everyone who's serious agrees that the current system is unsustainable - SOMETHING has to be done. Ryan's plan may not be perfect, but it's a hell of a lot better than Obama/the Dems plan of "tax the rich", which the article shows, won't solve our budget deficits. The simple truth is, spending cuts and tax raises aren't enough to solve the fiscal problems - we need to grow our way out of this debt, which means getting off the back of small business' and letting them do what they do.
- Doctors/nurses may benefit from medicaid/medicare, but less and less of them are accepting medicaid/care patients as Congress keeps cutting what's paid out - eventually, doctors will just stop seeing these people since the payments won't cover their costs. The system as it exists is broke, and it needs fixing.
- +1 to not sticking our noses where it doesn't belong, but I also kinda disagree with you a bit. The Arab world is undergoing a revolution - this may be our one chance to topple dictatorships and help install better regimes than what we have now (note: I said 'better regimes', not democractic or perfect ones).
Also, as the article makes clear, the REAL money is in the middle class -
Ryan's bill is a disgrace, and I find it silly if not ironic that people, everyday people would back it up, let alone keep on peddling this garbage to protect the rich.
The fact is buddy, the GOP and their corporate masters have been wanting the SS fund for some time. It's all that's left they can steal. I mean the FED is really doing a number on this country giving our dollars out like candy and just not to our own companies, overseas companies too. Though I think a lot of people are getting it, seems there have been many people getting angry at the GOP while they are doing their town meetings... Which is nice.
Good video