Obama's tax-the-rich canard is good politics and lousy economics: here's why what he says won't work, and what we should do instead

Ryan Streeter

President Obama was out hanging with Mark Zuckerberg and the Facebook folks yesterday, pushing his tax-the-rich canard, which the Facbook founder said he's "cool with."

So now Obama has added an element of cool to his profoundly misleading message. I worry that this theme, which on its face has an understandable appeal (hence Obama using it every speech), will doom any real progress on the 2012 budget. You can despise the rich and yet acknowledge that confiscating more of their wealth through higher taxes won't get us anywhere close to the goal we all say we're shooting for: deficit reduction.

In my monthly Star column I took a look at this issue:

• Some commentators have recently claimed that we could generate $3.9 trillion over the next decade by allowing the Bush tax cuts to expire. The problem is that $3.2 trillion of that amount would come from people earning below $250,000, the group whose taxes Obama promised not to raise.
• his shows just how little revenue would be raised from those above the $250,000 threshold: roughly $700 billion. That's roughly what we pay for Social Security right now, and nothing else.
• What if we confiscated all of the taxable income from America's millionaires and billionaires? That would yield $938 billion.
• There is more taxable income in all the households in America earning between $50,000 and $75,000 than in all of those earning more than $5 million.This means that if tax increases are our solution to the deficit, we have to adopt a "soak the middle class" approach if we're serious about fixing the problem.
• Three-quarters of America's small businesses, which have created two-thirds of all new jobs in the past 15 years, pay individual tax rates rather than the corporate rate. Raising the top rate will hit them hard.

The point of my column is not merely to push back on the tax-the-rich nonsense but to agree that we do indeed have a problem with how we treat the rich in America. We can pursue a deficit reduction strategy that also helps fix this problem. Specifically:

• Means-test entitlement programs as part of a larger reform effort. Investment bankers can pay for their own hip replacements and don't need Social Security checks. Means testing, especially in a defined-contribution system, will help us achieve fiscal balance at the same time significantly reducing how many tax dollars we send to the wealthy.
• Lower tax rates in exchange for an end to most deductions and credits in the tax code. Most deductions are regressive -- that is, they benefit the more affluent among us. Lower overall rates minus the deductions will help reduce the deficit and keep the wealthy from finding all kinds of ways not to pay taxes.
• End subsidies and implied guarantees to banks, agriculture, green technologies and other transfers that do little to help ordinary people and largely benefit big businesses. Most Americans would be shocked to learn how much the government directly (through subsidies) and indirectly (through guarantees, such as for mortgages) sends to corporations that should be competing in an open, free market.

Comments

[Steve Becker]

Hey Ryan great article. The Character Council of Indiana misses u.

Steve Becker