Michael Barone

I think there is a serious risk that the Obama tax proposals are going to bring back those days. Yes, they call for returning the high income tax rate only to the sweet spot of 39.6 percent. But they also want to reduce the amount of the mortgage interest and charitable deductions for high earners, which would channel less money to charities and more to the government (and thus to public employee unions and, through them, to the Democratic Party) and would raise the effective rate on high earners to above 40 percent -- a number with a four in front of it.

Add on to that the state income tax rates of 10 percent or so in place or in contemplation in New York, New Jersey, Connecticut and California -- states with more than a quarter of the nation's high earners -- and you are looking at income tax rates above 50 percent.

When you get a number with a five in front of it, you are in grave danger, I submit, of directing the animal spirits of our most productive citizens away from productive investments and toward tax shelters: "Those bastards want to take half my money, and I'm not going to let them get it." You are at risk of directing our economy back into the unproductive slog of the 1970s and away from the robust growth of the 1980s, 1990s and most of this decade.

My economist colleagues at the American Enterprise Institute tell me they know of no studies that buttress my thesis. Economists tend to believe that opinion moves in linear fashion. But that's not always true. Case in point: gas prices. When gas prices earlier last year were at $2, $2.50, $3 and $3.50, most Americans opposed oil drilling offshore and in Alaska's Arctic National Wildlife Refuge. When they hit $4, opinion shifted. The Santa Barbara County Board of Supervisors and the governor of Florida suddenly favored offshore oil drilling. As for Alaska, nuke the caribou!

Obama in his chosen city of Chicago always assumed that the private sector would be eternally bounteous. As a community organizer following the formulas of Saul Alinsky, he assumed that the political establishment would always be there and that if you organized smartly enough, you could get a chunk out of it.

When he decided that community organizing was small change and went into the politics business, he, like all Chicago politicians, assumed that the private-sector economy would always be bounteous and that if you shook its members down and taxed them, you could always get a bigger chunk out of them. And it has mostly worked that way in Chicago.

But America is not just Chicago writ large. The Obama tax plan, combined with major state tax plans, puts not a three in front of the high earners' tax rate as the Clinton plan did, it puts a four or a five in front of it. And at that point, I fear, the animal spirits of high earners are going to be directed away from productive investment and toward tax avoidance and tax shelters. Away from creating new enterprises that can provide avenues upward for any and all, and toward gaming the system for the well-connected and shrewd insiders. Away from an economy that grows more than anyone imagined and toward an economy where system-gamers take shares of a static pie away from the rest of us. Is that where we really want to go?


Michael Barone

Michael Barone, senior political analyst for The Washington Examiner (www.washingtonexaminer.com), is a resident fellow at the American Enterprise Institute, a Fox News Channel contributor and a co-author of The Almanac of American Politics. To find out more about Michael Barone, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com. COPYRIGHT 2011 THE WASHINGTON EXAMINER. DISTRIBUTED BY CREATORS.COM


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