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« Economics at AoSHQ U: Part 2 - Money | Main | Mickey Kaus: This Fight Is Between the "Rationers" and the "Treaters" »
April 13, 2011

CNN: Tax the Rich, But Then What, Mr. President?

Gee this seems familiar.

[T]here just aren't enough rich people to generate the kind of revenue needed to substantially reduce deficits.

To show the disparity, consider some recent calculations by the Congressional Budget Office. Raising all six income tax rates by 1 percentage point would yield an additional $480 billion over 10 years. By contrast, raising the top two rates by 1 percentage point would yield just $115 billion.


All told, [Obama's proposed tax hikes only for conveniently small groups of people] -- which would affect individuals making at least $200,000 and couples making $250,000 and up -- would reduce deficits by just under $1 trillion over 10 years.

That's only about a third of the deficit reduction that would occur if lawmakers just let all of the Bush-era tax cuts expire.

A country can sustain huge subsidies for a hugely populous cohort only if it's with the other hand taking huge amounts of tax revenue from that same cohort.

The Democrats have always sold social welfare programs the same way -- they want to subsidize the poor, which is nice, but not particularly popular, so they always entice the middle class with promises that the middle class, too, will receive the same subsidies. (Well, less so, because they have to take a big skim out of that to subsidies the non-tax-paying poor, but the middle class gets some back.)

The trouble is that they have escalated benefits for the middle class far beyond the tax revenue the middle class is willing to contribute, or Democrats dare ask them to pay. Therefore our current DOOM: We're paying out huge amounts of money to the middle class (which is popular) but only taking from them enough to partly pay for those benefits (which is also popular).

Two wonderfully popular elements to the Democratic plan of perpetually offering more welfare to the middle class, and the only downside is the country is going to be destroyed.

So the Democrats must do what they have always avoided doing: They must either tell the middle class that their popular subsidies are going to get slashed, or they must tell the middle class they will have to pay much higher taxes in order to fund the subsidies that aren't really subsidies, in as much as it's just the middle class sending a tax check to Washington and Washington sending them back a much-diminished portion of it, with big skims taken out to subsidize the poor, various boondoggles that result in campaign contributions, and administrative sloth and inefficiency.

The whole Democratic appeal is based on the notion that you can have more money than we have. For a long time, due to favorable demographic forces (the huge bulge of young people in the Baby Boom), the fact that the system was or would be paying out far more than it was taking in was disguised.

But now, as those previously tax-contributing Baby Boomers are about to cash out, en masse, that favorable, concealing demographic bubble is about to have the opposite effect.

I don't know what Democrats can do about this, except do as Harry Reid does and put us on a path of financial armageddon. Because, as a party, they simply have nothing else.

Thanks to Andrew's Dad for tipping me to this last night.

Oh: By the way, the deficit shot up almost 16% (15.7%) the first six months of this year alone and due to the magic of compounding interest it only gets worse from here.

Oh: And the Republicans are no better, because they won't cut spending or tell the public the truth.

My position on taxes and spending is evolving, I have to admit. If the Republicans won't cut spending, as they apparently will not, always promising to get serious on cuts after the next election cycle (and then, when that cycle has passed, declaring the next cycle is even more important so we mustn't cut until after that one, too), then I have no choice but to support broad-based, significant tax increases.

Since I don't want the country to be destroyed.

If we have two parties which are determined to spend this much money, then there is no alternative than to bring "revenues" (as I guess I'm supposed to call them) to match this level of "investment."

And maybe when the public actually gets a big tax hike they'll start to reconsider whether subsidizing themselves is a smart idea.

Until they're compelled to make that choice, I just see DOOM being the popular choice.

digg this
posted by Ace at 10:09 AM

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