Today’s news is all about “gifts,” which seems seasonally appropriate. Specifically, Mitt Romney wondered aloud yesterday about the affection showered on the re-elected President by voters who received some form of government assistance, whipping up gales of protest from the gentle souls who police this sort of undignified and ill-mannered fingerpointing. But it begs a larger question, which is the general obligation of the administration towards those who turned out in such impressive numbers to lend their support. Some think they may expect a larger degree of “support” in return.
People who need help should get it, whatever form it needs to take — food, shelter, medical treatment and so on. I’m less enthusiastic about outright subsidies, but the alternative to a reasonable availability of government assistance can be seen in many, many nations, and it isn’t at all pretty. Nations where citizens are left in dreadful want pay a far higher price, in terms of safety and quality of life, than we pay here in hard tax dollars. Most of our assistance programs do actually convey a fair measure of common value to all of our citizens.
So much for the hedge clause. Now, down to business. What is it that Obama really wants to do? Well, he wants to raise taxes. Why?
Yesterday Obama asked for a $1.2 trillion “revenue increase” (tax hike) over the next ten years. That’s a $120 billion annual tab, which doesn’t do very much to eat into our titanic debt load, or even mitigate recent annual deficits, which have exceeded $1 trillion for several years now. So what will it do? Well, it will pay for a lot of gifts. But we suspect Obama has other ideas.
One thing puzzles me. We often hear about how “ordinary people” want “the rich” to pay higher taxes. And why not? The problem comes when you try to define “rich,” and for Obama, that number seems to be an annual combined household income of $250,000, or roughly 3% of households nationwide. That’s not very many votes. So — why aren’t the rich already much more heavily taxed? In fact, why do they have anything left at all? It would seem that with 97% of the electorate earning less, you’d have a pretty enthusiastic crowd supporting tax hikes of confiscatory dimensions. And, as is often pointed out, by far the majority of income tax revenue — and that’s what we’re talking about here — comes from a fairly small slice of the population already: 10% of taxpayers pay 70% of income taxes.
The first answer is, of course, that this three percent controls the Republican Party, and can therefore dictate to the rest of the nation what tax policy should be. Hogwash.
The second is the belief that many people secretly believe that they too can someday strike it rich, and loll around in designer duds sipping vintage bubbly when their ship finally comes in. More hogwash.
The third, and most likely reason is that the country isn’t ruled by complete chowderheads, and we have seen what high taxation does to an economy before. No one in his right mind — which includes most, if not all Democrats — .wants to see the kind of economic destruction that punitive taxation brings. Hollande’s call for a 75% top bracket in France is already producing substantial capital flight, and frankly, we doubt that he’ll be able to put it through, even in France, which is even stranger than you think. (Check out the recent Vanity Fair article about Hollande, his former mistress and his current mistress and their ongoing epic catfight.)
Of course, we do have various whackjobs around the web calling for a “restoration of Eisenhower-era tax levels.” These folks conveniently forget that no one paid those rates, which topped at 90% of earnings above $200,000 (about $1.5 million today). High earners simply changed the way they were paid, and let earnings build up in their businesses. More to the point, deductions were nearly infinite; almost everything got written off. The resulting damage to tax revenues mandated the swift rollback of rates to more sensible levels, which brings us to reason number four.
The fact is, you can raise taxes all you want, but if the hikes result in less actual revenue, then they don’t do much good, even as they do a lot of harm. So we wouldn’t hold our breath waiting for Obama to start parroting his French counterpart. And those folks who went to the polls expecting a new measure of largess from a grateful Obama? They might find themselves surprised at how stingy a legacy-builder can get, especially when he’s not running for office again.
Tax increases may be inevitable given the amount of damage we’ve sustained from a prolonged slowdown, and the destruction of capital caused by the housing collapse. Tax receipts are down significantly from their highs during 2006, 2007 and 2008, on national, state and municipal levels, and cost-cutting at a certain point begins to create too much damage too the employment figures. No one would argue that governments are understaffed (actually, they would, wouldn’t they?), but slashing the public sector payroll any further will not serve the national economy well either.
Keynes noted that austerity is best practiced during booms, not busts. The best we can hope for is that the governments that spent so lavishly during the good times will be better prepared next time, and keep sensible control of their purses when the good times roll around again. Since this has never happened in this country, we probably hope in vain. Politicians are by nature very generous people, as it is never their own money that they spend.