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Soaking the Rich Won't Get Us There

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As we move forward from a bad debt ceiling deal that Republicans indicated wouldn't include raising taxes, there's a renewed push by the president and the legacy media to raise taxes.

“President Obama and many of his fellow Democrats continue to call for higher taxes on the wealthy. And, according to results of a CNN/ORC International Poll released Wednesday, many Americans agree that it's the only way the country can dig itself out of its current economic mess...

But just how many rich people are there? And are there enough of them for a tax increase to really make a dent in the United States' trillions of dollars in debt?...

Yet, even though these high-income earners are a minority, Obama says the proposed tax increases would boost revenue by $750 billion over a decade.

It's not quite the multi-trillion figure the U.S. needs to pay off the deficit, but for many of those who responded to the CNN/ORC International poll it's evidently a good enough start.”

--  CNN http://money.cnn.com/2011/08/11/pf/tax_increase_rich/index.htm

The point missed in the article above--and apparently by many in the public--is that $750 billion over a decade is $75 billion/year out of a deficit that has been running at more than a trillion dollars per year for the last three years.

Even draconian and confiscatory tax increases on the wealthy would not be enough to substantially decrease the deficit without endangering economic activity.

The fact that the poll indicates that the public might support such tax increases on the wealthy despite the fact that the increases would not materially change our fiscal situation is evidence not that raising taxes is a good idea, but rather that Democrats have largely succeeded in their class warfare rhetoric.

The larger problem is that Democrats are playing with the idea of raising taxes on the wealthy which distracts from the reality that massive spending cuts must be instituted.

Even if you soak the wealthy as Obama prefers, huge spending cuts cannot be avoided. And, quite frankly, it's going to be painful whether we cut a trillion dollars per year or $925 billion... and that's the difference in spending cuts if we increase taxes by failing to renew the Bush tax rates--even using the optimistic numbers from the Obama Administration. And most likely the actual revenue that would be obtained by raising taxes is much less which makes the argument for doing it even less persuasive.

Democratic calls to raise taxes on the wealthy are not a solution to our deficits but rather just a political class warfare strategy. Only by proposing tax increases on the middle class can Democrats argue that tax increases can solve our deficit problem, and only by using their faulty economic models where tax increases don't significantly change behavior.

Republicans have proposed politically risky solutions that do address our problems from a conservative understanding of economics, and they've made those proposals in an election year.

Will Democrats propose a politically risky solution from a liberal understanding of economics? One that proposes increasing taxes not just on the wealthy but on the middle class as would be required to raise enough revenue? Will they have the political courage to make that painful proposal in an election year?

I'm not holding by breath, because Democrats aren't really interested in solving the deficit. Not even under their flawed liberal assumptions.

See more top stories from Townhall Finance, new home page, more columns, more news:

John Ransom Hey Libs, Face Facts: Obama's a Bad President
Craig Steiner Soaking the Rich Won't Get Us There
Jeff Carter Dodd-Frank "Bank Reform" Will Increase Food Prices
Bob Beauprez Killing Jobs, Cost Won't Stop Obama EPA
Terry Savage What's Happening in the Financial World, and What You Should Do
Mike Shedlock France, Spain Intervention in Markets Will Fail
Bill Tatro If You Loved it at $100, How Do You Feel at $2?
George Friedman Global Economic Downturn: Crisis of Political Economy
John Ransom Just in Time, Another Obama Nine-Day Vacation
Email Ransom thfinance@mail.com
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Twitter http://twitter.com/#!/bamransom

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