"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Monday, April 11, 2011

Cutting Spending or Raising Taxes - A Thought Experiment II

Let's slice this issue another way.   Let's assume we could have a magic wand and grant the wish of liberals like Mika Brzezinski, the co-host of "Morning Joe" on MSNBC with Joe Scarborough, who today apparently offered that, if "rich white men" making $250,000 or more don't start paying more in income taxes, we're going to have "class war."   OK.   That seems to be the mantra of a lot of liberals.   Let's do the math.   The richest 1% of the nation in 2008 averaged $380,000 a year and paid 38% of the federal income tax.   The richest 5% averaged only $159,000 a year, but paid close to 60% of all of the federal income tax.   The liberals' threshold is higher than that at $250,000 -- the magic number Obama has repeated ad nauseum -- so let's say you'd be taxing only the richest 3% who pay about 50% of the total federal income tax.   These are approximations, but I think they are "fair," as they say.

As I said below, however, federal income tax accounts for "only" around $1.1 trillion a year, so the taxes paid by the upper 3% would "only" be around $550 billion a year.   To solve the $1.6 trillion deficit by raising taxes only on "the rich" who make over $250,000 a year, you'd thus have to quadruple their taxes.   Do you think that would make them change their behavior?   All those doctors and lawyers and business owners... do you think they might change their decisions?   Do you think that might have an impact on economic activity, on hiring, on investment?   Huh?   Do you think?   Again, an economy is not a static system... it's composed of actors who will act rationally and will change decisions based on incentives and disincentives.  

And, even more importantly, Miss Liberall, do you really think that's fair?   If those 3% are already paying half of the federal income tax burden, do you think it's fair to ask them to quadruple what they pay?   At that rate, they'd be paying around 80% of the federal tax burden (about $2.2 trillion out of $2.75 trillion), rather than 50% ($550 billion out of $1.1 trillion).  

We can't tax our way out of our deficit, no matter how many times we invoke the evil "rich white men."   The only way we can do it is to cut our spending, and do it soon. 


Ace of Spades makes much the same point I've been making here, and does so with the added bonus of beating up on Paul Krugman, one of the most despicable liberal pundits out there:
Okay, so, hypothetically, the "Bush Tax Cuts" are now ended. Poof. That brings the yearly deficit from $1.65 trillion all the way down to... $1.468.5 trillion per year.
And what next, Krugman? You violently oppose any reduction in spending so you must have in mind either:
1) The simple collapse of government and the economy, or
2) Generating more revenue from somewhere else.
Where else, Mr. Krugman? Where are you imagining you can get ten times the $181.5 billion per year you just heroically "saved" us?
And what next?

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