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April 18, 2011

WSJ: And Then What?

The Wall Street Journal is hitting the most important fact of budget debate -- Obama's vision of a leviathan Super-European-sized government can only exist with the middle class paying federal tax rates approaching 50% -- and that's good.

The thing is, though, this has to be pushed out of the realm of "wonkish discussion" and into the realm of "common knowledge." Only a relentless -- almost robotic -- repetition of this basic fact by anyone appearing on television will make this happen.

In 2005 [the most recent favorable year for Obama's tax-the-rich proposal; the "rich" have been much less rich of late] 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 Security—but 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 ambitions—even before his health-care plan kicks in.

Emphasis added; I want to make sure everyone knows we are talking about 100% taxation levels.

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.

Hey, I keep saying that. In case you don't know the line, Willie Sutton was a notorious bank robber, and when a reporter asked him, "Why do you rob banks?" he answered, simply, "Because that's where the money is." I think the reporter meant to ask why do you rob at all, whereas Sutton took the question to mean why do you rob banks. Sutton just assumed the "robbing" part and focused on the choice of target.

The Democrats have a similar mentality. If you put them under truth serum and ask "Why are you creating the circumstances under which we will have no choice but to heavily tax the middle class?" they'll answer "Because that's where the money is." Like Willie Sutton, they assume the "rob" part is obvious; they're just focusing on the target for the heist.

The following chart is not of taxes paid by different income level cohorts -- it's a chart of the total income available to be taxed within each grouping.

It's like a big middle finger to Obama's claims of pain-free deficit reduction via only "the rich."

No matter how you slice it, the rich do not have enough money, even if we seize their incomes at 100% levels (which is both impossible and unconstitutional), to make up for Obama's deficits.

But look at all those ripe trillions ready for the plucking in the $50,000 to $200,0000 range. Delicious.

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....

I forgot about that -- the tax and cap system was sold as a some kind of "Green" policy, but in fact what it really was was a direct tax on the middle class which, it was hoped, would be disguised enough that the middle class wouldn't realize they were having the government seize big chunks of their income, because the huge bills would come via a third party (energy companies).

That was Obama's not-so-secret plan to fund his behemoth state. As did Pelosi's floating of the idea of a national sales tax or VAT.

But now those have been stopped (for now). So what next?

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.

Spending reductions in the tax code -- Catch the Fever!


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posted by Ace at 01:08 PM

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