President Obama said Wednesday that while he and Speaker Boehner are closer together than the public arguments seem on a deal to avert the fiscal cliff, their biggest sticking point is the amount by which taxes will go up on the wealthiest Americans.
Obama’s “tax the rich!” lament is tired, and his abiding focus on that goal is puzzling for a simple reason: no amount of increased taxation on wealthy Americans will solve our nation’s fiscal woes. It won’t even make a dent.
Candidate Obama summarily dismissed an almost universally agreed upon tenet of taxation in favor of his nebulous notion of “fairness;” it should be no surprise that President Obama is doing the same.
- David Laska
In a quixotic quest to see the rich “pay their fair share,” the President has proposed an almost comically modest incremental tax rate hike of 3.6 percent (from 36 percent to 39.6 percent) for earnings above $250,000.
This is, and has always been, a political rather than an economic plan: the numbers don’t add up because the rich don’t earn enough to pay for all of Obama’s spending.
The federal government ran an average annual deficit during Obama’s first term of $1.3 trillion. In order for the debt to stabilize, tax revenues would have to be raised by at least this much.
An increase in the marginal rate by 3.6 percent amounts to roughly $40 billion in new tax revenue – a big sum, but not in the context of a $1.3 trillion deficit.
Put another way, $40 billion would slow the growth in the deficit by approximately nine days. So, if a 3.6 percent rate hike is enacted on January 1, 2013, by January 9th, we will back where we started.
Even if we consider a higher incremental tax rate hike, the math doesn’t work, because the tax base above $250,000 is only $1 trillion. In order to increase government revenue by $1.3 trillion on a tax base of $1 trillion, the top tax rate would have to be more than 100 percent - hardly a viable solution.
Even if the federal government confiscated all of the income – all of it – from the wealthiest 1 percent of Americans, the resulting increase in revenue would only be enough to run the government for about a month.
The conclusion is simple: unless the president has a plan for either cutting spending or increasing the number of wealthy Americans, the budget simply cannot be balanced by taxing the rich. The result will either be a tax on the middle class or a debt balance that continues to grow.
The President’s insistence upon higher tax rate for the wealthy made sense during the campaign, when he rode a wave of divisive class warfare rhetoric to a 60 percent vote share amongst those making under $50,000 per year.
But while a call for increased tax rates on the wealthy was good politics, it remains terrible policy. So why does the President continue to bang the “tax the rich!” drum?
The best answer might lie all the way back in 2008, when ABC's Charlie Gibson pressed Obama on his pledge to raise taxes on capital gains despite the fact that, as Gibson put it, “history shows that when you drop the capital gains tax, the revenues go up."
Obama's answer spoke volumes: "Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness."
So there you have it. Never mind history or economics, the wealthy have too much money, and that isn’t fair. Candidate Obama summarily dismissed an almost universally agreed upon tenet of taxation in favor of his nebulous notion of “fairness;” it should be no surprise that President Obama is doing the same.
And as Obama eschews compromise in favor of fairness, our debt increases, our deficit grows and the fiscal cliff draws ever nearer.
David Laska is Communications Director of the New York State Republican Party.