Obama Tax Plan – Brings Us Within A Heartbeat of European Social Democracy
The top 1% of U.S. taxpayers earns 22% of the income and pay nearly 40% of all income taxes. The bottom 50% pays just 3%. We are told that this is unfair, and the “rich” should pay their “fair share”. It would probably not overburden the top earners to pay 43% and eliminate all taxes on the bottom 50%. After all, it would only take a 5.5% increase in the amount the top 1% already pays to eliminate the need to collect from the bottom 50%. Can the rich afford it - yes, but can the poor.
Could a house so divided prosper? Given the class-warfare rhetoric from the administration and Congress it appears that this is just the country they wish to create. Use tax credits for the bottom 50%, increase marginal rates for the top 1-2% and voila the American taxpayer becomes a minority.
“When the people find that they can vote themselves money, that will herald the end of the republic” - Benjamin Franklin.
Realistically, we cannot reverse the inequality of income distribution by merely creating a tax scheme that redistributes income; we need to change the dynamic. There will be no “high paying” jobs in the 21st century for unskilled laborers. Education and training are the only answer. It takes longer, it’s harder and we will not have instant gratification, but it is the only answer to this dilemma.
“The Constitution only gives people the right to pursue happiness. You have to catch it yourself” - Benjamin Franklin.
Summary of Federal Individual Income Tax Data, 2006 (Updated July 2008)
Obama’s big innovative solution, “Tax the Wealthy“. All it takes is to move the top rate on personal income from 36% to 39.6%, raise the top rate on dividends and capital gains from 15% to 20% (except on stock of companies with less than $50 million in sales, on which there would be no tax), keep the estate tax at 45% on estates of more than $3.5 million, reduce some deductions for the wealthy and all our problems will disappear. This Robin Hood approach of having the “wealthy” pay their fair share, just will not work. Despite the “tax the wealthy” strategy the average annual deficit will be $700 billion from 2010 to 20019, which, according to the Obama budget, will be boom times? GDP will likely rise to an eye-popping $23 trillion in 2019 based on his budget. However, expenses will grow to nearly $5.2 trillion and “taxing the rich” clearly will not pay for it.
The Congressional Budget Office (CBO) has concluded that, if the Obama budget were approved, the federal government would actually run even larger deficits averaging nearly $1 trillion a year over the next decade. The cumulative deficit from 2010-19 would be $9.3 trillion, according to the report - $2.3 trillion more than the administration’s forecast. The main reason for the difference in budget estimates is a difference in economic growth, with congressional views of long-term growth less optimistic than those of the White House.
Obamanomics represents change with unconscionable trillion dollar annual deficits leading us to the brink of national insolvency. And to what end - to remake the United States into a mirror image of a European social democracy?
So if “education and training” are the answer to income-inequality, who is supposed to pay for all this education and training? With the credit collapse, student loans have become harder and harder to come by, meaning education and training is becoming inaccessible to more and more people every day. And let’s not forget the simple rules of supply and demand…the more people become educated, the less valuable education becomes. Why would a Ph.D. be able to demand a good salary if every member of the population already has a Ph.D.?
The natural economic order inevitably leads to massive income inequality. Just look at the history of human societies and it’s pretty obvious that wealth being controlled by a tiny minority is the natural order of things. Only with the rise of democracy in the last 200+ years has there been a change. A middle-class can only exist as a political creation. You can’t simply educate and train everybody and expect everybody to do well. The only result is you’ll have much smarter poor people.
Essentially, we have two choices. We can continue the democratic tradition of wealth redistribution policies that create a modest level of affluence for nearly all, even though the process will often be messy and involve ugly trade-offs. Or we can go back to the good ol’ days of a small group of wealthy elites controlling everything…the economic system, the political system, the education system…everything.
And before you answer that question, consider the popular dictum, “A rising tide raises all ships.” This has been used frequently in recent decades to support policies that advance the interests of the privileged few in hopes that this would improve everybody’s overall well-being. But that’s like raising the ships and hoping the tide follows. In reality, the rise of the middle-class actually raised the standard of the living for the wealthy tremendously. A king in the 18th century undoubtedly would have killed (literally) to have it as good as a modestly wealthy person has it today. The demand created by a modestly affluent middle-class creates opportunities for wealth creation that have never before been seen on earth. Buffett and Gates and all the other billionaires owe their wealth to millions of middle-class people who buy their products. If we return to the days of mass poverty, even the very wealthy will see massive reductions in their standards of living.
April 28th, 2009 at 3:26 pm
Devin, you misunderstand the tide that is the middle class.
You think it has to do with taxes and wealth redistribution by the government. It does not. It is a complete side effect of the baby boom. The baby boom created an increase in capital in the US (labor being the primary part, and it was not just in the US this has happened), which has been followed by an increase in spending. As the baby-boomers retire both the capital and spending they represent will decrease. In other words, the tide is going out, and there is nothing you can do about it. This has occurred four times in the history of the US, and most people are not aware.
As a society we cannot change demographics. As an individual each of us has choices that impact our individual situations and circumstances. Increasing taxes and the deficit to attempt to fix things will only put more pressure on individuals, and take away incentive to create value.
The top 50% of the population of the US pays 33 times as much taxes as the bottom 50%. BTW, that is of those who have a positive AGI, which has no bearing on whether or not the person lives well or not. The bottom 50% earns more than 90% of the population in the world. Since it cannot balance the budget to do so (will only raise about $100 billion vs a $7 trillion deficit), it makes no sense to increase the difference unless you want to cause a revolt. Doing so will, however, place a burden on the middle sized businesses and business owners who employ the majority of the tax payers, so it could actually cause a decrease in the total tax revenue generated, and hurt the bottom 50%.
May 18th, 2009 at 12:32 pm
Consider this. If the top 0.5% of the countries top earners expatriates, leaving 99.5% of all earners, it would result in a one-time HEART Act exit tax on the unrealized gain on their assets, which would certainly bring in a boatload of money. But that one-time shot would mean that approx. 30% of the income tax base is gone in the following year and in every year after that.
Approx. 20-25% of the world’s billionaires are in the U.S. If most of them left, it would cripple the treasury.
And now is the time to do it. With market losses and future taxes being higher, they may well pay far less now than they would in a few years.
Can’t call them tax cheats. They paid at the door. Besides, after paying millions in taxes to leave, do you think they care what you think?
June 17th, 2009 at 1:29 pm
Oh, and once they leave, they bear no responsibility for the U.S. debt. Its as if they left the meal during appetizers, and paid their share, leaving everyone else to pay for their share of the appeitzers, and the meal and dessert
June 17th, 2009 at 1:30 pm