Ken’s Take: In yesterday’s post, I argued that fully taxing the top 2% wouldn’t come close to paying for Barack-O’s programs. A day later, here’s the WSJ analysis. Slightly different numbers, same conclusion.
* * * * *
Excerpted from WSJ, “The 2% Illusion – Take everything they earn, and it still won’t be enough”, Feb 26 2009
President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end “tax breaks for the wealthiest 2% of Americans,” and he promised that households earning less than $250,000 won’t see their taxes increased by “one single dime.”
This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can’t possibly raise enough revenue to fund Mr. Obama’s new spending ambitions.
In 2006, roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That’s about 7% of all returns; the data aren’t broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% — about 1.65 million filers making above $388,806 — paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.
As a thought experiment, let’s go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable “dime” of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.
The bottom line is that Obama is selling the country on a 2% illusion. Taxes on the not-so-rich will need to rise as well.
Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don’t ignore the data. And the reality is that the only way to pay for Mr. Obama’s ambitions is to reach ever deeper into the pockets of the American middle class.
Full article:
http://online.wsj.com/article/SB123561551065378405.html
* * * * *
Want more from the Homa Files?
Click link => The Homa Files Blog
The Homa Files 
February 26, 2009 at 10:11 am |
Read this first on WSJ and thought of your post yesterday right away. How is it that nobody on the main stream media seems to be paying any attention? It just doesn’t make sense. I
February 26, 2009 at 12:14 pm |
Actually, the way the new tax codes are written people making $208,850 will see many deductions go away. So tens of thousands of families that make 16% less than $250,000 will see their tax burdens go up several hundreds of dollars.
In a manner of thinking that’s the same as not “one single dime.”
http://online.wsj.com/article/SB123559630127675581.html
February 26, 2009 at 2:33 pm |
[…] | An opinion piece on WSJ called “The 2% Illusion” is quickly spreading through the […]
February 26, 2009 at 3:51 pm |
The average top marginal tax rate in the U.S. since 1913 is 61%. If you look back historically, large decreases in the top marginal tax rate (e.g. 1924-1929, 1987, 2003) have preceded every major stock market crash.
When the people who felt they shared in the wealth as part of the expansion of 2003-2007 realize that their paper gains in home equity and 401k’s were for naught, there will be massive backlash against the wealthy and a return to higher marginal rates. It will be necessary to rebalance the system from the days of $35,000 toilets and $1,400 garbage cans. The arguments of “the top 1% pays xyz% of the taxes” will lose all meaning when people struggle to get by and executive comp continues to spiral out of control.
February 26, 2009 at 4:42 pm |
How does increasing the marginal tax on wealthy do anything for losses in home equity or 401ks? It doesn’t do anything to correct any excess (if they were in excess or unfair) gains the wealthy got in the past. Changing the marginal tax rate after a crash just penalizes people who make smart choices or do good work after the crash is over. Increasing the tax rate does nothing for home equity since it won’t increase prices or 401ks since wealth transfer does nothing to lift stock prices. In the end, it seems like such as backlash would just be bitterness.
If the government wanted to increase marginal rates to fund a short term stimulus instead of borrowing, that might make sense. But if the government really wants to simulate long term growth, then it would seem better to lower the marginal rates so that people have more money to spend. As SMH points out, decreases have led to expansions. That’s what everyone wants. The conclusion that the tax rates led to crashes is a spurious correlation. Each of the crashes has had a different underlying cause. See Tassim’s “Black Swan” for a discussion of that.
February 26, 2009 at 7:31 pm |
I love this line from the article:
“Pragmatists don’t ignore the data.”
And nothing I have seen so far leads me to the conclusion that Obama is true example of a data-driven decision maker like the brilliant but hard to pin down Romney. I find his talent for putting liberal ideas in conservative words unparalleled.
February 27, 2009 at 10:06 am |
SMH, your assertion about lower top marginal tax rates and market crashes doesn’t hold water.
1) JFK cut top marginal rates in 1963 (by a lot more than Bush 43 could ever hope to) and there was no bear market
2) The 1987 crash was a bear market for about 48 hours and is generally attributed to program trading and regulations unable to cope with new technology. The DJIA dropped 22% on Oct 19 and gained more than 10% on Oct 21.
3) Despite two and a half decades of economic liberalism and expansive government policies, the it took until 1957 for the DJIA to regain it’s 1929 peak.
Is the goal here economic growth or economic equality? I’d encourage you to look at real wage growth of the bottom 20% in America since 1981 compared to the middle 60%.
The results might surprise you.
April 19, 2009 at 10:49 am |
WOW! All I know is that in 1977 I was paid $10.00 per hour as a maintenance supervisor and now (2009) we are to believe $10.00 an hour is some type of living wage. Where did I go wrong? Maybe MONEY is not our problem at all!