The Class War Has Begun

The problem with the new administration is that there is just too much good material to chose from in writing these posts. So today I'll pick on their healthcare reform funding proposal.

After a number of dodges and feints, the class warfare has begun. Pres. Obama has proposed a nearly three-quarters of a trillion dollars tax increase to fund his plan for healthcare reform. There is no argument that our healthcare system needs reforming. But the President’s solution is the old leftist bromide, “soak the rich.” Pres. Obama proposes to fund this massive restructuring of healthcare by “ending tax breaks for the wealthiest 2% of Americans,” pledging along the way that taxpayers earning less than $250,000 won’t see “one single dime” of tax hikes.”

Nice try, but the numbers don’t work. Do the math:

About 4 million taxpayers have incomes above $200,000 (forget about $250,000). That’s less than 10% of all returns, and only yielded little over a half-trillion dollars in taxation in 2006. And those taxpayers account for nearly two-thirds of all taxes paid in 2006. So the President would still have a sizeable hole to fill, and not many taxpayers left to fill it with.

So, in order to fund his massive spending plan, he would have to raise taxes—again. Right now the President is proposing to raise the highest marginal tax rate to nearly 40%. Add on another two percent for the net effect of reducing the mortgage and charitable contribution deductions, for an effective top rate of 42%. That still wouldn’t yield enough taxation to fund his social programs. So, in for a penny, in for a pound. Let’s assume the President confiscates all the taxable income of everyone in the U.S. making over a half-million dollars. The result: about an extra $1 billion in taxes. That not even half of the federal budget when the Democrats took over Congress in 2006 and less than a down payment on the $4 trillion this Congress will spend in the next federal budget.

The President’s math relies heavily on the financial assumption that the economy will improve in 2009. How many of you think that’s going to happen? In fact, history shows us the opposite: that taxation is regressive. That is, the more you tax, the less taxation the government collects, because you destroy the productivity incentive (less overtime worked, fewer employees hired, less money spent on development of new products). The less you tax, the higher tax receivables go (companies and workers keep more of their own money, spend in on durable goods, growing businesses and hiring workers).

Finally the unintended consequence of reducing deductions on charitable contributions and mortgage payments for the wealthiest Americans will also have a negative impact. Americans are the most generous people on earth, contributing billions of dollars of personal wealth each year to worthy causes around the world. Mr. Obama’s plan will reduce these contributions by destroying the incentive to make them. His plan will also delay the housing recovery that he is banking on by making it less attractive for wealthy taxpayers to buy homes on a grand scale—the ones that require the most building materials, most shipping, most skilled construction workers and the most support.

The problem with leftist plans like “soak the rich” is that they sound so good. So easy. But the problems are usually a lot more complicated than simplistic solutions like the President is proposing. In this particular case, the numbers just don’t stack up. Simply put: two percent of the American taxpayers that Mr. Obama is hitching this wagon to can’t pull the load he’s piling on them.

Bottom line: if you make $200,000, or $175,000, or even $150,000, get ready. They’re coming for you next.