There is a new theme emanating from the left these days: America isn’t broke; there’s plenty of money out there being hoarded by wealthy Americans; just get it into the public coffers and all will be well.
Chuck Schumer and Michael Moore have used variations on that theme, but the most intelligent version of this argument comes from E.J. Dionne (WaPo) – and the fact that Dionne’s comment tops the bill for this argument is measure enough of its weaknesses.
At its heart, the we’re-not-broke crowd insists that “the wealthy” have more than enough to balance our budgets (Dionne goes so far as to hint that they can wiped out deficits at all government levels). Two National Review writers (Kevin Williamson and Robert VerBruggen) take issue with that.
Williamson runs some what-if scenarios, and finds that relying on the rich to balance just the federal budget would be a near-impossible feat:
But say we wanted to balance the budget by jacking up taxes on Club 250K. That’s a problem: The 2012 deficit is forecast to hit $1.1 trillion under Obama’s budget. (Thanks, Mr. President!) Spread that deficit over all the households in Club 250K and you have to jack up their taxes by an average of $500,000. Which you simply can’t do, since a lot of them don’t have $500,000 in income to seize: Most of them are making $250,000 to $450,000 and paying about half in taxes already. You can squeeze that goose all day, but that’s not going to make it push out a golden egg.
But like certain other exclusive clubs, Club 250K has an inner sanctum, a special club within the club, the champagne room of socioeconomic status. And that is Club 1: the million-dollar-a-year club. Not the millionaires’ club — lots of the people earning $1 million in any given year do not have $1 million in assets — but, still, a million a year, even in rapidly depreciating U.S. dollars, is not too shabby. But the trouble for liberals is, Club 1 is really, really exclusive: Only 0.2 percent of U.S. households have incomes that high, meaning that there’s only about 200,000 of them. And like Club 250K, Club 1 is bottom-heavy: There are a lot more $1 million men than there are $6 million men. And there are a whole heck of a lot more $6 million men than there are $60 million men.
You want to tax Club 1 to get rid of the deficit, you have to hit each of those 200,000 households with an average tax hike — not an average tax bill, but tax increase — of $6 million. And a lot of those Club 1 households don’t have $6 million in income to start with, much less $6 million left after the taxes they’re already paying.
Every time you raise the threshold for eating the rich, you get a much, much smaller serving of meat on the plate — but the deficit stays the same. The long division gets pretty ugly. You end up chasing a revenue will-o’-the-wisp.
Meanwhile, VerBruggen does some calculations to determine how much taxable income is out there among Americans earning over $200,000 a year. After taking into account what these wealthy Americans already pay in taxes, he ends up with “about a trillion dollars” – or less than Washington’s current deficit this year.
This, of course, assumes that the would-be victims will simply leave their money wide open for Uncle Sam. Don’t hold your breath for that one. Lest we forget, one of the major incentives Americans have for home ownership is that mortage interest is tax deductible while rent is not. If millions of middle-class Americans can understand and use tax avoidance, does anyone really think it will escape the wealthy?
So much for taxing the rich.
Dionne then tries some statistical income envy and the usual Old Keynesian drivel about government spending and the economy; the closest thing he comes to actual data is a discussion of Treasury Bill interest rates. Of course, he leaves out the fact that Treasuries are overpriced (and thus selling at lower interest rates) because (1) the flight to American debt that came with the Eurozone debt crises, and (2) the Chinese Communist Party’s massive T-bill buys, driven not by confidence in the American economy but by the need to artificially devalue the renminbi for the sake of their export platforms.
The same source for the T-bill argument (??Bloomberg’s David Lynch) goes on to note that “tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.”
The problem with that statement is the implication of what “political will” means (in Lynch and Dionne’s case, a tax hike). In fact, the last 60 years have shown that what drives revenue is the economy itself, not tax rates. Thus, if the government wants to raise revenue, it needs recovery, not redistribution – which brings us back to the emerging consensus on the weakness of government spending in this regard and the danger of tax increases.
The Dems are actually revealing their trauma over health care. The no-crisis mantra was what they believe sunk Hillarycare in 1994 (it actually capsized on its own, but that’s a different matter entirely), set in motion Bill Clinton’s tack to the center, and “forced” Obama to ram Obamacare down the American people’s throat.
It also gives them the appearance of optimism and hope amid Republican “doom and gloom.” Yet hope without facts is merely false hope – and voters already let the Democrats know what they thought of that last November.
