The Worst of All Tax Policies

For decades, voters have had to balance proposed increases in government spending against the necessary increases in taxes they would require. Government growth has been tempered by voters asking "yeah, that sounds nice, but how much will it cost me, the taxpayer?"

There are some who are suggesting Obama's plan to only raise taxes on the top 5% of earners is nothing but a typical empty campaign promise. But let's suppose Obama is telling the truth. That if elected he and the Congress will change the tax laws so that:

No family making less than $250,000 will see their taxes increase [and] the typical middle class family will receive well over $1,000 in tax relief under the Obama plan.

Such a change would turn the temperance of voters asking themselves "how much will government program X cost me, the taxpayer?" completely on it's head because only 1.5% percent of households (which I'll equate with Obama's use of "family") make more then $250,000.

Apparently, no longer would 98.5% of the population need to worry about increased taxes for the increased spending Obama is pushing for.

This shifting the tax burden for new spending to the top 1.5% reeks of "tyranny of the majority" and ominously brings to mind the Alexis de Tocqueville quote: "The American democratic experiment will succeed until the people realize they can vote themselves money from the public treasury. Then it will collapse."


And all this does call into question exactly how Obama will pay for the $430 billion a year of spending increases he proposes.

In 2006, 43% of the government's $2.4 trillion tax revenues came from individual income taxes. (With 15% from corporate income taxes and the remaining 42% from "other taxes").

Let's assume these percentages remain under a hypothetical Obama administration. That would mean Obama needs to raise individual income taxes by $185 billion - all of which would only be paid by the top 1.5% of income earners.

Now I'll be charitable in my analysis here. In addition to the $250,000 figure, Obama has also thrown around the figure of the "top 5%." So, let's actually be more generous and say this $185 billion will all be paid by the top 5% of income earners, not just the top 1.5%.

For 2006, the top 5% paid more than 60% of all personal income taxes - in dollars (rather than a percent), that's somewhere a bit higher than $625 billion. Adding this $185 billion would pump up the total personal income tax revenues by about 15%, from $1.04 trillion to $1.23 trillion. Adding this $185 billion strictly to the burden of the top 5% of income earners would mean that instead of paying 60% of income taxes, they would pay approximately 66%. That means the top 5% (which would include households making $150,000 and up) would be responsible for two-thirds of personal income tax revenue.

That's right:
5% paying two-thirds.

By contrast, let's look at the bottom 40% of households. Allow me to simply quote a recent Weekly Standard article:

The lowest 40 percent of income earners as a group actually receive net payments from the federal income tax system. (They get 3.8 percent of total federal income tax revenues instead of paying any income taxes.) The middle 20 percent of income earners pay 4.4 percent of federal income taxes. Thus the bottom 60 percent of income earners together, on net, pay less than 1 percent of all federal income taxes. (These workers earn 26 percent of national income.)

The data show that the top 1 percent of income earners now pay 40 percent of all federal income taxes, which is almost double their share of the national income. The top 10 percent pay 71 percent of federal income taxes, though they earn just 39 percent of the nation's pretax income.

At what point do even liberals realize this would be grossly unfair?


When you add in the fact that Obama is going to these lower income families a refundable tax credit (meaning that if the tax credit makes you have a negative tax liability, the government gives you the money for the credit, not just reduces your tax burden to zero), what we are really looking at here is, in fact, redistribution. Or, in Obama's words, sharing the wealth.

As Don Boudreaux clarifies, this isn't pure socialism, but:

This "socialism-lite," however, is as specious as is classic socialism. And its insidious nature makes it even more dangerous. Across Europe, this "mild" form of socialism acts as a parasitic ideology that has slowly drained entrepreneurial energy – and freedoms – from its free-market host.

Could it happen in America? Consider the words of longtime Socialist Party of America presidential candidate Norman Thomas: "The American people will never knowingly adopt socialism, but under the name of liberalism, they will adopt every fragment of the socialist program until one day America will be a socialist nation without ever knowing how it happened." In addition to Medicare, Social Security, and other entitlement programs, the gathering political momentum toward single-payer healthcare – which Obama has proclaimed is his ultimate goal – shows the prescience of Thomas's words.

The fact that each of us depends upon the efforts of millions of others does not mean that some "society" transcending individuals produces our prosperity. Rather, it means that the vast system of voluntary market exchange coordinates remarkably well the efforts of millions of individuals into a productive whole. For Obama to suggest that government interfere in this process more than it already does – to "spread" wealth from Joe to Bill, or vice versa – overlooks not only the voluntary and individual origins of wealth, but the dampening of the incentives for people to contribute energetically to wealth's continued production.

Eric Massa

Up until I last year I lived in New York congressional district 29. Two years ago, the contest was between Republican Randy Kuhl (incumbent) and Democrat Eric Massa. This year's election reprises that contest.

In 2006, the Iraq War was "pre-surge," still making daily newspaper headlines, and deeply unpopular. Massa's campaigned tried to seize on the unpopularity of the war and ran on a "I served in the military, and I'm against the war" platform. The race was within a couple points and it took a couple days after the election to figure out exactly who won.

My favorite moment of the entire campaign was getting a voicemail message on my cell from a Massa supporter who wanted me to vote for Massa because Kuhl voted in favor of "CAFTA: The Columbian Free Trade Agreement" which would "ship our jobs to Columbia".

Not being utterly ignorant, I knew the bill was the Central America Free Trade Agreement (or, actually - the Dominican Republic – Central America Free Trade Agreement). And having a basic grasp of simple economics, such as the principle of comparative advantage, I'm also not ignorant enough to think free trade is a raw deal. For those and a number of other reasons, I voted Kuhl.

Kuhl is nothing to write home about. He resembles everything I hate about the Republican party. In a debate this past week on a local Rochester TV station, Kuhl basically refused to admit that all the pork he's brought back to the district is, in fact, pork. And, as of tonight, doing a Google search on "Kuhl" and "pork" turns up a post on my blog as the top hit (in which I take Kuhl to task for his porking).

And yet, somehow, Massa winds up being even worse than Kuhl in my book.

Let me see if I can explain using this handy diagram of Massa's campaign (click for a larger version):



At some point, Eric Massa got a hold of a picture of Randy Kuhl and President Bush smiling in the back seat of a limo together. Massa uses this image in several of his TV ads and apparently, has a giant wall sized poster of it that he takes around with him.

Apparently, he thinks the good people of NY-29 can be swayed over like a bunch of 4 year olds using the juvenile logic of "see! see! see! Bush is like soooo evil, and Kuhl is like Bush and so Kuhl is evil. Look, look! They were even in a limo together! And they're smiling!!!!!!"

Those of us that aren't 4 years old say "Wow. Two politicians of the same political party were in a car together. And, what's the big deal again?"

Massa also continues to be anti-war and anti-trade. Given our success in Iraq but the trouble in our economy, I find the anti-trade position to be the more concerning of the two. A few weeks ago I responded on YouTube to his anti-trade ad with the following that I'll quote here:

In 1930, in an attempt to help a troubled economy, the government followed the advice Eric Masssa is advocating in this ad: to move away from free trade towards protectionism.

The result was the Smoot-Hawley Tariff Act, one of the central causes of the Great Depression.

By contrast, the United States saw great economic gains from NAFTA, a policy established under President Clinton!

Our current economic issues come from HUD, Freddie, and Fannie pushing subprime loans, NOT free trade.

I'll at least give Massa the benefit that he allows comments on his videos.

Perhaps the most concerning thing about Massa though, beyond his juvenile "Bush = Kuhl" rhetoric and stance on free trade, is that in his ads he promotes himself as an "independent voice" but he'd be nothing of the sort.

Massa's campaign is being supported by groups that are left-wing (like the Democratic Congressional Campaign Committee) and far-left-wing (like the Daily Kos). These groups aren't giving Massa massive amounts of campaign cash to be "an independent voice."

They want him to be their voice and give left-wing Democrats even further control over the Congress. Or, as Daily Kos founder, Markos Moulitsas, puts it:

We have an imperative to take advantage of a historic opportunity to break the conservative movement's backs and crush their spirits. In the White House, that means getting Obama a broad popular and geographic mandate for change. In the House, that means annihilating the Republican caucus and working toward a 100-seat Democratic majority. In the Senate it means getting to a 60-seat filibuster proof majority.

Any typically Republican voters considering "going Democrat" this cycle may want to think about if they really want to see a filibuster-proof majority of Democrats in Congress under the control of Nancy "you have to rip their face off" Pelosi and Harry "this war is lost, and the surge is not accomplishing anything" Reid.

Finally, I'll leave you with a YouTube video I put together of Massa flatly lying about the Bush record on taxes. I did feel a little out of place putting together something that's an awful lot like an attack ad, but I'm so sick of hearing liberal politicians slander the "Bush tax cuts" as tax cuts that were only for the "super rich" that I thought it important to call one of them out on this: