Doing the math: President Obama's plan to tax the rich will hardly make a dent in the deficit
The President will give a speech tonight on how he plans to solve America's deficit problem by taxing the rich.
From a distributional point of view, I have nothing against taxing the rich. Further, while it true fact that
taxes tend to shrink the tax base (the only question is how much),
let's ignore the Laffer-curve controversy. Let us instead accept the
left's own calculations about tax revenue.
The centerpiece of
President Obama's plan is to raise taxes on the rich (households making
$250.000 or more). There is no doubt that the rich have become richer
over the last few decades, and hence could afford this tax increase. If
taxing them would solve the deficit crisis, I would support it in a
heartbeat.
The only problem with this "solution" is that it is
dishonest. President Obama likes to give the impression that his plan to
tax the rich can significantly reduce the deficit, a claim which is
false and which Obama knows is false.
Everybody knows that the
rich have a lot of money, so it may appear reasonable to non-economists
that taking some this wealth can fill the hole in the budget. What the
public doesn't know, and what President Obama will not tell them, is
that there are just too few rich people in America for this plan to
work.
According to the Congressional Budget Office, over the next 10 years the Obama budget will produce a deficit of $10.900 billion, or 5.3% of GDP on average.
According to the left's own calculations and as reported by the New York Times, Obama's plan to raise taxes on the rich will generate $700 billion in additional revenue over the next decade, or just a pathetic 0.3% of GDP.
In
other words, the plan to raise taxes on the rich will only cover one
out of fifteen dollars of deficit spending. Where is President Obama
going to get the other fourteen out of fifteen?
To the $10.9 trillion in deficits we need to add the unfunded liabilities of Medicare and Social Security. According to the Trustees of these programs, the unfounded liabilities are a staggering $52 trillion.
Again,
any honest economist who knows the facts can tell you that a measly 70
billion in revenue per year from the rich will not come close to cover
Americas fiscal hole of at least 63000 billion dollars.
Sometimes
you hear from the left that repealing the Bush tax cuts will raise 3.7
trillion over the next 10 years. That certainly sounds better! What is
the difference between this figure and the 0.7 trillion figure I
reported for the rich?
The answer is that the 3.7 trillion figure includes the Bush tax cuts for the middle class,
which amount to 3 trillion over the next decade. The key to remember is
that the Bush tax cuts mainly went to households making less than
$250.000. Obama has no plan to repeal that part of the Bush tax cuts.
The Democrats and their allies in the media who cite the 3.7 trillion
figure are playing bait and switch and trying to confuse the public. I
saw this trick used recently by John Stewart to deceive his economically
unsophisticated audience.
A graph with the next ten years of deficits with and without the tax hike for the rich:
But
what if we taxed the rich even more? Didn't Warren Buffett promise
taxing the wealth of billionaire's like him could solve the problem or
something?
Forbes Magazine lists all American billionaires. Going by their 2010 numbers, American billionaires have around 800 billion in net worth.
Even
if we could take confiscate all their assets without any risk to the
economy, this one-time solution would just pay for around six months of
the 2011 deficit Obama is running.
By opposing the tax increase
for the rich based on the argument that it would hurt growth instead of
pointing out how little revenue it generates, the Republican party has
given President Obama a gift. The Democrats give voters the impression
that the only obstacle in the way of fiscal balance are the
Republican's, their rich friends and their supply-side ideology. This
strategy works, because the public is as economists say "fiscally
ignorant". Ordinary people simply don't know the relative magnitudes of
the deficit, they only know the rich have lots of money.
The
media meanwhile has only a selective interests in educating the American
public. When miss-perceptions help the left the media suddenly loses
interest in their duty to inform the policy debate.
Did occupy write Obamas budget?
Quoting LindaClement:Obama's plan?
Don't you mean the 99%'s plan?
I expected it to be a response to the strong social pressure protests of that kind are supposed to cause...
Isn't that what they wanted?
Quoting Carpy:Did occupy write Obamas budget?
Quoting LindaClement:Obama's plan?
Don't you mean the 99%'s plan?
I don't think the occupy movement had much affect on DC.
Quoting LindaClement:I expected it to be a response to the strong social pressure protests of that kind are supposed to cause...
Isn't that what they wanted?
Quoting Carpy:Did occupy write Obamas budget?
Quoting LindaClement:Obama's plan?
Don't you mean the 99%'s plan?
I don't either, not the least because 'cohesive message' was missing entirely. It's hard to talk people into what the pack of you want, when the pack of you can't even describe it.
Quoting Carpy:I don't think the occupy movement had much affect on DC.
Quoting LindaClement:I expected it to be a response to the strong social pressure protests of that kind are supposed to cause...
Isn't that what they wanted?
Quoting Carpy:Did occupy write Obamas budget?
Quoting LindaClement:Obama's plan?
Don't you mean the 99%'s plan?
yeah basically its saying, to me anyways, that no matter how hard you work for your money and get to that 'wealthy' status your only going to be making money to pay for everyone else's problems because the govt is gonna tax the hell outta your money which is no longer yours at all
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