Spreading the Wealth Around

Linda Chavez
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Posted: Oct 17, 2008 12:01 AM
Spreading the Wealth Around

"When you spread the wealth around, it's good for everybody," Barack Obama explained to Joe Wurzelbacher in Ohio earlier this week. But Joe the Plumber, as he has become known thanks to Wednesday night's presidential debate where his name was invoked no fewer than a half dozen times by both candidates, isn't buying it. And Wurzelbacher is right to be skeptical.

In an interview with CBS' Katie Couric after the debate, Wurzelbacher said he was worried that Obama would be the one deciding who was wealthy and, therefore, should be taxed more. Obama says only those earning more than $250,000 will see their taxes go up. But Wurzelbacher worries, "When's he going to decide that $100,000 is too much, you know? I mean, you're on a slippery slope here."

Wurzelbacher's fears are well founded. Obama was unable to name a single significant program that he would scale back when asked by debate moderate Bob Schieffer to do so. Obama will have to come up with the money to pay for some trillion dollars in new spending in his first term -- including what he calls a "tax cut" but which will really be a check from those who do pay taxes to low-income Americans who already don't pay any federal income taxes.

The wealthy already pay a hugely disproportionate share of all federal income taxes. According to an analysis by the non-partisan Tax Foundation using the latest IRS figures (for 2006), taxpayers with an adjusted gross income (AGI) of $153,542 and above made up the nation's top 5 percent of earners. But this top 5 percent paid nearly 60 percent of all the income taxes collected in 2006, while earning about 37 percent of AGI. For all the talk of middle-income earners paying most of the taxes, the facts suggest otherwise. Those in the 26-50 percentiles of AGI pay about 11 percent of taxes and earn 19 percent of income.

So when Barack Obama says he wants to "spread the wealth around," what he's really talking about is redistributing wealth through the tax system by forcing higher income earners not only to pay a disproportionate share of taxes but to fund cash transfers to those earning less. Sen. Obama's proposed tax plan includes provisions for what he calls refundable "tax credits" for low-income Americans, many of whom don't pay any federal income taxes. In other words, those who already pay no taxes would be sent a government check equal to the "credits" in Obama's plan, including 6.2 percent of income of those earning up to $8,100 and a refundable "credit" of 10 percent of mortgage interest paid by those who don't itemize.

Obviously some people think this is "fair." Obama told John McCain in the debate on Wednesday, "Well, I don't mind paying a little more." But Joe the Plumber might not feel quite the same way. As a small businessman, Wurzelbacher will likely take those earnings to invest in a bigger company -- that's what he told Obama he wanted to do when he asked his original question on the campaign trail.

By growing his business, Wurzelbacher is creating wealth. And by "redistributing wealth," as Obama wants the government to do, he's actually reducing overall wealth in the economy by taking away capital from those who can invest it efficiently in direct job creation. And the real irony is that if Obama is elected and succeeds in raising taxes on the top 5 percent, he's likely to collect less tax, not more, if history is a guide.

Obama says he wants to return roughly to the tax system in place during the Clinton years. But in 1994 (after Clinton raised the top tax rate in what was the largest tax increase in history), the top 5 percent of earners paid only 48 percent of all taxes, not today's 60 percent. Even after the boom years of the late 1990s, the wealthiest 5 percent were shouldering less of the tax burden than today's wealthy, about 55 percent. And the total revenues collected from them were less than today as well.

One of the great successes of America has been the realization of people like Joe the Plumber that one day they, too, could be "rich" if they worked hard, invested, and grew their own businesses. Now Sen. Obama and the Democrats want to replace that American Dream with a fantasy that wealth is static and must be redistributed in order to ensure fairness. If Sen. Obama's plan becomes reality, it could well turn into an economic nightmare by punishing the most productive in order to reward the least productive in our society. Spreading the wealth doesn't sound all that different from Karl Marx's famous dictum: From each according to his ability to each according to his need.