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  • You Can’t Tax the Rich Enough to Close the Deficit

    President Obama has driven spending and deficits to historic levels in just two years since taking office. Not content to stop there, his budget for the next 10 years keeps spending at record levels and piles up unprecedented amounts of debt in the process. To partially offset his massive overspending, the President wants to raise taxes on “the rich.” His class warfare plan can take him only so far, however, since the rich don’t earn enough to make up the difference for all the spending he plans.

    Obama’s current tax hike plan would raise the top two income tax rates from 33 and 35 percent to 36 and 39.6 percent, respectively. This tax hike will take effect on January 1, 2011, if he has his way and will slow the already badly struggling economy. This will keep unemployed Americans out of work longer and suppress the wages of those fortunate enough to retain their jobs. In fact, the higher tax rates Obama calls for will destroy an average of 800,000 jobs per year by the end of the decade and lower incomes by $720 billion over that same period.

    Over the next 10 years, the Obama tax hikes will take almost $700 billion from taxpayers. That is only 8 percent of the nearly $9 trillion President Obama’s budget adds in debt over that same period. Low tax revenues are not the cause of the debt explosion; spending is. The Obama budget raises spending to almost 25 percent of GDP—well above its historical average of 20 percent. Tax revenue will soon exceed its historical average of 18 percent of GDP.

    President Obama has repeatedly expressed a desire to sock it to the rich to cover for his profligacy, so it stands to reason he could stick them with additional tax increases to cover his gargantuan budget shortfalls. The President shows no signs he wants to reduce spending to lower the deficit, so tax hikes remain his most likely prescription. No matter how much he wants to “spread the wealth around,” if he goes the tax-the-rich route, he is in for a rude awakening.

    Closing the more than $1 trillion deficit Obama’s spending would produce in 2020 by taxing only the rich would require a top income tax rate of 134 percent. Of course it is impossible to tax more than 100 percent of any taxpayer’s income. More importantly, any rate even approaching such a dangerous level would destroy the economy. Period. So even if it were mathematically possible to tax more income than the rich earn, there would be none of it left for the government to confiscate.

    There is a better way. If President Obama and Congress committed to spending reductions, the deficit could be lowered to more acceptable levels without raising taxes a dime. If Congress and the President lowered spending to its historical average of 20 percent of GDP, the deficit would fall to a more manageable level, the national debt would stabilize, and an impending financial meltdown would be averted. Whether the President can let go of his soak-the-rich mentality and take this more sensible approach remains to be seen.

    Posted in Economics [slideshow_deploy]

    25 Responses to You Can’t Tax the Rich Enough to Close the Deficit

    1. Andrew Marti says:

      The deficit will only be closed by increased taxes PLUS reduced spending. There is no other way.

    2. Linda Roda says:

      Our nonpartisan website, 2010 or BU$T-VoteBigSpendersOut.com tracks spending by vote for every Senator and Representative since January 2009.

      We hope to make a difference in the federal midterm elections.

      Please help us spread the word!

      Thank you!

    3. LALaw, CA says:

      This article has so many baseless statistics (e.g. average tax revenue of 18% of GDP – what's the base year? is this before the creation of Medicare?). Also, how much of the deficit is caused by a decrease of revenue?

      800,000 jobs per year? I work at a corporate law firm, make over $250K per year and know first hand personal tax rates have 0 influence over hiring. Most top corporate law firm partners make over $1MM per year and are notably included in the definition of "small business owners" that Republicans use to get the ridiciulous statistic that 50% of small business revenue is in the top bracket. We're joined in this definition by our buddies in investment banking as well.

      In case you didn't check the results from the 2008 election, people making over $200,000 a year voted for Obama 52-46% anyway. We know Republicans economic policy sucks, that's why we don't vote for them.

      P.s. I doubt someone working at the Heritage Foundation is making over $200,000 a year anyway. Maybe some did in the past as corporate lawyers or investment bankers, which would give them even more of a hint that a tiny tax increase on income over $250K a year would have no effect on hiring.

    4. Steven Glenn Poyzer, says:

      It should be understood that Obama, Soros and company aren't taxing the rich to close the deficit or pay off the enormous debt burden, that has been created by the federal government fiscal malfeasance, they are instead trying to bankrupt the economy and bring the nation to its knees.

    5. Deborah Johnson says:

      IF all revenue from the tax increases would be applied to paying down the debt, and IF spending were to be decreased accordingly, it might work. But, judging from Congress' previous behavior, I would expect them to spend that revenue and more, raising the debt even further. I think they lack the wisdom or courage to do what is bound to be difficult (and probably unpopular) but necessary.

    6. Drinking Tea and not says:

      Clearly, if we want to increase jobs, we don't want to raise taxes on entrepreneurs, small business owners, and people who have money to invest and spend on employing others. However, it appears that LALaw is proposing that perhaps we should raise taxes only on the lawyers, especially the ones who support the President's economic policy. Interesting idea.

    7. Tom Georgia says:

      This may sound more than just a bit off-the-wall, but Newton's third law of motion, for every action there is an equal and opposite reaction can be applied helpfully in analyzing the effects of taxation.

      If a dollar of money flows to the Treasury by taxation or by any other means, concurrently a dollar of cost-of-government flows from the Treasury to the place that the money came from.

      The working assumption is that the dollars of cost flow to the point from which taxes are paid then stop and stay there. There is no rational reason to make such an assumption. Just as the money that was used to pay taxes didn't spring into being at that point but flowed to there from elsewhere, the dollars of cost-of-government flow onward to the place that the money flowed from.

      If it is a medical doctor who is paying the taxes then the cost-of-govrnment flows onward to the doctor's patients or to their third party payer. If the patient was a Medicare or medicaid patient and the payer was the government, then the dollars of cost flow back to the Treasury. The dollars of cost then have to be sent somewhere once again in exchange for money that is paid in taxes or money that is used to purchase Treasury notes and/or bonds.

      Another helpful little item: The Treasury operates as a switching manifold that switches money from incoming "pipes" to outgoing "pipes". There is not tank that can be used effectively to store value either in the Treasury, elsewhere in the federal government or in any other government at any level. If money is collected, it must be spent.

      Note that the Federal Employees Retirement System trust fund is deposited with Barclay's International where it is invested in assets that have material economic value throughout the world.

      All the other so-called "trust funds" consist of nothing more than Treasury IOUs that the Treasury is "obligated" to make good on but will be able to meet its obligation only if we, the people are able to underwrite the Treasury obligations.

      The United States Federal Government has become little more than the largest crime syndicate that has ever existed. Our federal government is a sad, sick joke that the politicians in Washington, DC, are playing on us, the people who live in the fifty states of the real and actual United States of America.

      It is long past time for the clown show to be terminated and for the cast of characters to get out of town and out of the way.

    8. Jill, California says:

      We can't solve the problem with class warfare. We are all in this together.

      Raising taxes on the so-called wealthy taxpayers … those making more than $250,000 … will ultimately hurt the middle class. It's not only about job creation. It's about passing along expenses.

      To stay in business, a small business whose taxes go up will have no choice but to raise the price of goods and services, passing the tax hikes on to their customers. So those of us in the middle class will get hit the hardest.

    9. Drew Page, IL says:

      LA Law — At first, I was all in favor of keeping the Bush tax cuts for all income earners, but after reading your post, I have decided to support the current tax rates for only those making less than $250,000.

      BTW, were you making $250,000 a year back when Bush made the tax cuts? If you were, how much of those tax cuts did you give back to the government? For all those who feel they aren't being taxed enough, please, please submit your names and Social Security numbers to the IRS telling them how you don't feel you are paying your fair share. The average family income is somewhere around $55,000 annually. You might feel a whole lot better if you had the same take home pay as the family making $55,000. I'm sure the IRS would be more than happy to accomodate your request.

      Nothing is stopping you and those feeling like you from paying more. If you want to give away your earnings go ahead, give it all away. But don't presume for a moment that you speak for the reast of us who want to hang on to what we have earned.

    10. Sam Taylor says:

      @LA Law: So since your accusing the author of this article of vague facts, where are some of your own to support your theory of Corporate Law partners and investment bankers being considered small business owners? Can you provide a percentage breakdown of the 50 percent number, what percentage fall into the categories you describe? Oh and also, please, define for me your definition of people in the 250k and over bracket currently they account for 80 plus percent of tax revenues, so explain to me how they aren't paying their fair share? And by all means, since you feel you aren't giving away enough of your money, donate to a good local charity, you will get way more value for your dollar donated in helping others, than if you flush it down the federal toilet.

    11. AJens, Wallingford C says:

      The only way we can slow this man down is Vote. Vote the Dems out

      Get new blood in congress and maybe we'll get the new thinking.

      I'm 75 and still working because I can't afford not to. My investments are

      worth 75% of what they were 2 years ago. House Value also down.

      and of course medical insurance is jumping up and Soc. Security staying

      the same. Doesn'tObasma know that most of the investers are middle class

      or lower middle class. We are the savers. Small business prevides jobs

      Stop taxing business so much so they can hire people and expand.



    12. Acetracy, NYC says:

      The 1.0% top richest could certainly pay off the national debt with an intangibles tax, or a tax on net worth. It's done in many countries, esp. ones that have faster growing economies than here in the USA. The Federal Government could balance the budget and begin to pay off most national debt with a 1% intangibles tax on net worths greater than $10 million.

      Again, this affect under 1% of the population and many of these people are paying 2% min. to their hedge funds.

      Income should not be the only source of tax revenue. And with stagnant wages for over 70% of US workforce, and increase in income or sales tax just reduces consumption and doesn't allow the vast majority of Americans to save!!

      A Net worth tax would of course exclude residences, but would include art collections, private companies, trusts.

      The US tax structure is anti jobs, not because of the higher rates on upper income groups, but because of the ridiculously low tax rates on financial trading: options, derivatives, futures, and short term trading. Jobs are being destroyed because financial power houses are bleeding capital out of the system to pay for their speculative profits.

      10% tax rate on option income, 15% on private equity gains, etc. These are rates that a family earning under $20,000 can expect, not a billionaire hedge fund manager. All short term profits (under 1 year) should start at a cap gains rate of at least 70%. Day trades up to 90%. These kind of tax rates would get our wonder kids back to creating products and jobs rather than financial engineering.

    13. Bobbie says:

      You Can’t Tax the Rich Enough to Close the Deficit and that's why it will collapse. It's all on purpose! We need strong leadership and Americans living off government, to have the dignity to take on their own lives and responsibilities.

    14. Bobbie says:

      …an expectation reflecting one principle of America. FREEDOM

    15. Rich Stewart says:

      LA Law – You may be impressed with yourself because you work in a corporate law firm but that in and of itself has nothing to do with the conversation about economics. Government deficits are created by spending too much not by taxing too little.

      Here are few basic concepts that even someone making more than $200K that got suckered into voting for hope and change should be able to understand.

      1. Government spending does not/cannot create wealth or jobs – ergo “right sizing” government is a good thing to do

      2. Only people actually pay taxes (businesses, buildings, land, etc do not pay taxes… it’s someone’s money)

      3. Increasing taxes on those with wealth hurts those with less wealth more than it hurts those with greater wealth

      3a. If you are looking for a job follow the money… those that don’t have much of it seldom have any job openings available

      4. There is no free lunch (see Milton Friedman if you don’t understand this; YouTube -The Free Lunch Myth – about 7 minutes run time)

      As for hope and change, surely someone so involved in the “corporate” world should know that hope is not a strategy.

      However, as Drew suggests, if you feel strongly that you are not paying enough in taxes feel free to send as much of “your” money as you would like to Little Timmy Tax Cheat Geithner. Those of us that understand that a just government is one that is constituted to protect the individual’s rights to and in property not to see how much property can be confiscated by government will continue to pursue “right sizing” government. See James Madison – Property if you are having difficulty with this concept.

    16. Bob says:

      Yeah, makes sense. I'm hoping we can fix some of this by voting in a few weeks. Maybe we can scare the guy enough to a least consider not spending so much of our money.

    17. David, USA says:

      Higher tax revenues received by the federal government will not be used to close the deficit. Remember when Bush 41 agreed to a tax increase and the Congress promptly spent $1.83 for every new $1 in projected tax revenue? Congress (and the rest of the federal behemoth) will always seek to gorge itself at the trough of tax revenues. The ONLY way to kill its appetite is to make it quit cold turkey. Spending cuts demanded by the people and enacted by responsible (and responsive) representatives is the only way to solve this problem. The issue is not who to tax, but where to cut.

    18. Erroll, Indiana says:

      maybe we should take notes from california and take up an initiative like proposition 19. Legalize and tax the hell out of it.

    19. Pingback: Antagoniste.net- Site d'opinions libertariennes : âmes sensibles s'abstenir ! » Développement durable

    20. Eldon Stromberg says:

      You are obviously a Republican. Yes we can close the deficiet in five years easily my taxing the very wealthy as outlined by Thomas Jefferson: Tax the wealthy and DO NOT tax the average citizen.

      I must admit the Republicans, (The Koch Brothers) have spent a small part of their fortune (about 1 billion) to distract the public with blantant lies.

      I suggest you study the Dunning-Kruger Syndrome in regard to your ravings.

      Also, I understand you must write about something to meet your contractual deadline to fill space.

    21. Eldon Stromberg says:

      Also, after WW2, we had a significant debt – which was resolved to everyones satisfaction.

    22. Jeff, CA says:

      @Eldon Stromberg:

      It has been my experience that those who cite the Dunning-Kruger Syndrome are those most affected by it.

    23. Pingback: “You Can’t Tax the Rich Enough to Close the Deficit” | ThePolitiBot.com

    24. Anonymous says:

      Yes, we can!

      If governement spendings are also slashed…

      The United States will become a third-world country if the deficie can´t be closed and it would be a much more bloody affair than the break-up of the Soviet-Union.

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