Megan McArdle quotes her reader Trimalchio‘s explanation of why the Left’s Tax-the-Rich rhetoric is fraudulent.
For anyone who wants to discuss the revenue side of the budget debate knowledgably, I highly recommend spending some time with the IRS’s Statistics on Income. Table 1.1 under Individual Statistical Tables is a good place to start: http://www.irs.gov/pub/irs-soi…
You can see, for example, that total taxable income in 2008 was $5,488 billion. Taxable income over $100,000 was $1,582 billion, over $200,000 was $1,185 billion, over $500,000 was $820 billion, over $1 million was $616 billion, over $2 million was $460 billion, over $5 million was $302 billion, and over $10 million was $212 billion. Effective tax rates as a percentage of taxable income seem to top out around 27%.
You can estimate the effects of various proposals in the best case, which is that each percentage point increase in the marginal rate translates to an equal increase in the effective rate. Going back to 2000 (“Clinton era”) marginal rates on income over $200,000, let’s call it a 5 percentage point increase in the marginal rate, would therefore yield $59 billion on a static basis. Going from there to a 45% rate on incomes over $1 million (another 5 percentage point increase) yields an additional $31 billion. Or, instead, on top of 2000 rates over $200,000, 50%/60%/70% on $500,000/$5 million/$10 million? An extra $133 billion, or nearly 1% of GDP. That’s not accounting for the further middle class tax cuts that are usually proposed along with these “millionaires’ taxes.”
Now, compare this to deficits of $1,413 billion in 2009 and $1,293 billion in 2010, and using optimistic White House estimates, $1,645 billion in 2011 $1,101 billion in 2012, $768 billion in 2013, and continuing at over $600 billion after.
Alternatively, you might also notice that while taxable income in 2008 was $5,488 billion, adjusted gross income on all returns was $7,583 billion on taxable returns only (with an additional $680 billion on untaxable returns), which means that $2,095 billion isn’t even in the tax base. $592 billion of that difference is exemptions, which are not tax expenditures, and $1,512 billion is deductions, which are mostly tax expenditures.
My point is just that I don’t see how deficits this large can be closed with income taxes on the rich, even at marginal rates far higher than anything we’ve seen in the post-1986 era. Paying for spending at near-term levels, not even considering entitlement and interest payments that will accelerate a decade out, would have to include meaningful base broadening by eliminating tax expenditures like the mortgage interest deduction or the employer health case deduction, or would have to rely on new taxes like a VAT.
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Even if we outright confiscated the wealth of all of this country’s billionaires, we couldn’t break even for this single year.
The grand total of the combined net worth of every single one of America’s billionaires is roughly $1.3 trillion. It does indeed sound like a “ton of cash†until one considers that the 2011 deficit alone is $1.6 trillion. So, if the government were to simply confiscate the entire net worth of all of America’s billionaires, we’d still be $300 billion short of making up this year’s deficit.
That’s before we even get to dealing with the long-term debt of $14 trillion, which if you’re keeping score at home, is between 10 to 14 times the entire net worth of all of the country’s billionaires, combined.
Federal deficit-spending is impairing economic recovery and posing a grave threat to the future well-being, and even the safety, of Americans. We are looking at the real possibility of losing the dollar as reserve currency as well as the US position of financial and political leadership, and losing even the ability to fund a military capable of sustaining our country’s role as a world power.
If we do not want to condemn the next generations of Americans to a shrinking quality of life in a country which has declined into impotence, obscurity, and despair, we are going to have to make very significant and dramatic political changes.
Rembrandt van Rijn, Belshazzar’s Feast, 1635-8, oil on canvas, National Gallery, London
Essentially, we are seeing today, in both Europe and America, the arrival of the time in which the post-WWII Welfare State is proving financially unsustainable. The theory that the establishment elite could redistribute to the cannaile a sufficient quantity of the wealth produced by the productive sector of society to overcome the inherent disadvantages of sloth, intoxication, and criminality as a life-style, or at least to raise them to the level of the working classes, has proven to be futile, counterproductive, and a dream. The associated theory that labor cartels could successfully employ propaganda, intimidation, and governmental coercive force to deliver upper middle class life-styles permanently to modestly skilled workers has already failed conspicuously.
Communism collapsed a few decades ago, and the lesser gods of the religion of the Left are failing now. If you can’t have a Welfare State and you can’t have Trade Unionism either, it isn’t clear what there remains of an imaginable left-wing agenda.
The budget plan introduced by House Budget Committee Chairman Paul Ryan actually represents a serious effort to fix the entitlements crisis and close the enormous gap between government income and expenditures. I do not believe that I have ever seen, in my lifetime, so courageous a piece of legislation. Wall Street Journal
One can see the dramatic impact of this one hundred degree shift in politics in the fact that it immediately forced the New York Time’s substitute-for-a-conservative David Brooks right off the fence, and transformed him into a full-throated supporter.
Over the past few weeks, a number of groups, including the ex-chairmen of the Council of Economic Advisers and 64 prominent budget experts, have issued letters arguing that the debt situation is so dire that doing nothing is not a survivable option. What they lacked was courageous political leadership — a powerful elected official willing to issue a proposal, willing to take a stand, willing to face the political perils.
The country lacked that leadership until today. Today, Paul Ryan, the Republican chairman of the House Budget Committee, is scheduled to release the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes. Ryan is expected to leap into the vacuum left by the president’s passivity. The Ryan budget will not be enacted this year, but it will immediately reframe the domestic policy debate.
His proposal will set the standard of seriousness for anybody who wants to play in this discussion. It will become the 2012 Republican platform, no matter who is the nominee. Any candidate hoping to win that nomination will have to be able to talk about government programs with this degree of specificity, so it will improve the G.O.P. primary race.
The Ryan proposal will help settle the fight over the government shutdown and the 2011 budget because it will remind everybody that the real argument is not about cutting a few billion here or there. It is about the underlying architecture of domestic programs in 2012 and beyond.
The Ryan budget will put all future arguments in the proper context: The current welfare state is simply unsustainable and anybody who is serious, on left or right, has to have a new vision of the social contract.
The democrat-controlled Senate will probably decline to endorse moving to a sustainable federal government, but Congressman Ryan has framed the 2012 Electoral Debate. This is a budget that Republicans can campaign on.
Yuval Levin, at National Affairs, argues that we have reached a watershed point in domestic policy, arriving at the moment in which it is vitally essential to begin thinking about what the new social order is going to look like, now the Welfare State has been demonstrated to be unsustainable.
All over the developed world, nations are coming to terms with the fact that the social-democratic welfare state is turning out to be untenable. The reason is partly institutional: The administrative state is dismally inefficient and unresponsive, and therefore ill-suited to our age of endless choice and variety. The reason is also partly cultural and moral: The attempt to rescue the citizen from the burdens of responsibility has undermined the family, self-reliance, and self-government. But, in practice, it is above all fiscal: The welfare state has turned out to be unaffordable, dependent as it is upon dubious economics and the demographic model of a bygone era. Sustaining existing programs of social insurance, let alone continuing to build new ones on the social-democratic model, has become increasingly difficult in recent years, and projections for the coming decades paint an impossibly grim and baleful picture. There is simply no way that Europe, Japan, or America can actually go where the economists’ long-term charts now point — to debts that utterly overwhelm their productive capacities, governments that do almost nothing but support the elderly, and economies with no room for dynamism, for growth, or for youth. Some change must come, and so it will.
But fully grasping this reality will not be easy. Our attachment to the social-democratic vision means that we tend to equate its exhaustion with our own exhaustion, and so to fall into a most un-American melancholy. On the left, fear of decline is now answered only with false hope that the dream may yet be saved through clever tinkering at the edges. On the right, the coming collapse of the liberal welfare state brings calls for austerity — for less of the same — which only highlight the degree to which conservatives, too, are stuck in the social-democratic mindset.
The fact is that we do not face a choice between the liberal welfare state on one hand and austerity on the other. Those are two sides of the same coin: Austerity and decline are what will come if we do not reform the welfare state. The choice we face is between that combination and a different approach to balancing our society’s deepest aspirations. America still has a little time to find such an alternative. Our moment of reckoning is coming, but it is not yet here. We have perhaps a decade in which to avert it and to foster again the preconditions for growth and opportunity without forcing a great disruption in the lives of millions, if we start now.
But we do not yet know quite how. The answer will not come from the left, which is far too committed to the old vision to accept its fate and contemplate alternatives. It must therefore emerge from the right. Conservatives must produce not only arguments against the liberal welfare state but also a different vision, a different answer to the question of how we might balance our aspirations. It must be a vision that emphasizes the pursuit of economic growth, republican virtues, and social mobility over economic security, value-neutral welfare, and material equality; that redefines the safety net as a means of making the poor more independent rather than making the middle class less so; and that translates these ideals into institutional forms that suit our modern, dynamic society.
I get dragged, these days, into aimless arguments with liberals on Facebook. Jim Scheltens taunted overnight: “[T]he federal deficit didn’t matter until we had a black democrat president.”
I think the Bush deficit mattered, but deficits are normal in times of war, and the 9/11 attacks inevitably resulted in military operations. Obama’s deficits are, by contrast, deficits of choice and are of a completely different order of magnitude.
Obama has scheduled $5 trillion in new debt since he took office, in part as Keynesian stimulus to snap us out of a slowdown that seemed instead to get worse. The massive debt was incurred in service to new redistributive entitlements that, we are told, will level the playing field. And to implement a new government absorption of health care, the administration has so far granted over 1,000 exemptions from its own landmark legislation. Many of the labor unions that were the most vocal supporters of the president’s agenda are the most eager to be freed from the consequences of his health care mandates. …
Debt is now the father of us all. In some sense, every cruise missile fired, every Social Security check cashed, ever NPR show aired is done so in part with borrowed money. In response, the president saw the impending doom of insolvency, appointed a bipartisan commission to draft a solution, and then ignored his own appointees’ recommendations. So far the excuse is largely that George Bush ran up debt as well, although last month Obama’s red-ink exceeded the entire 2007 budget deficit under Bush — 30 days of Obama trumping 365 of Bush.
The Obama deficit is different in character. Unlike other past presidents’ deficits, the debt resulting from currently projected federal spending has no possibility of being repaid at practicable or conceivable tax levels, the federal government as it exists is unsustainable, and that unhappy situation directly and immediately threatens America’s economic future, military capabilities, and role and position in the world.
When previous presidents overspent, we knew we could write the check today and cover it tomorrow. This time there is a real likelihood that the check will bounce, i.e. that the entitlement obligations the government has assumed are unaffordable and can in no circumstances be met. The police will not arrive to take all of us to jail, but before long, the existing systems of federal spending and entitlements will not undergo some process of orderly reform, but will collapse in a rout. The US dollar may no longer be the world reserve currency, the US may very well not be the world’s principal financial center or leading military power, and American presidents may be obliged to run US foreign policy past the foreign ministries of our leading creditors.
A Tomahawk Missile cost $569,000 in FY99, so if my calculations are correct, they cost a little over $736,000 today assuming they are the same make and model. The United States fired 110 missiles yesterday, which adds up to a cost of around $81 million. That’s… about 33 times the amount of money National Public Radio receives in grants each year from the Corporation for Public Broadcasting, which the House of Representatives… wants to de-fund.
John Hinderaker, at Power Line, again, puts current congressional efforts to reduce the federal deficit into perspective.
[I]f you do the math, what part of a Big Mac Extra Value Meal would a $6 billion budget cut represent?
The arithmetic is pretty simple, due to the extensive nutrition information that McDonalds makes available online. A Big Mac Extra Value Meal has three components: a Big Mac, a large order of french fries, and a medium soda. The McDonalds site tells us that a Big Mac has 540 calories, a large fries has 570 and a medium Coke has 210, for a total of 1,320 calories.
Meanwhile, the federal budget is currently around $3.8 trillion, which means that a $6 billion cut represents one 633rd of the total. What would be an equivalent cut in a Big Mac Extra Value Meal?
One variable is not readily available online; that is, how many french fries are there in a large order? To answer that question, I went to a nearby McDonalds at lunch time, paid for a large order of fries, and counted them. There were 87. (I counted fries regardless of size, but did not count the hard bits in the bottom of the container.)
This allows us to complete the calculation. If there are 570 calories in a large order of fries, and 87 fries per order, each french fry, on the average, contains 6.5 calories. One 633rd of the total calorie content of a Big Mac Extra Value Meal is 1,320/633, or 2.1 calories. That equals almost exactly one-third of an average sized french fry.
So, consider: if you were to go on what the Democrats consider a starvation diet, and “slash” your calorie intake to exactly the same degree that the Republicans’ $6 billion cut has “slashed” the federal budget, you would do the following. Go to McDonalds and order a Big Mac Extra Value meal. Eat the Big Mac. Drink the Coke. Eat 86 of the 87 french fries. Carefully take the last fry and bite off two-thirds of it. Put the remaining one-third of one fry back in the bag.
If you seriously think that you have just “slashed” your diet, you are a Democrat. Most likely, an overweight Democrat.
Mary Katherine Ham performs the math and demonstrates that total confiscation of all the assets of the rich would not, in fact, solve the federal entitlement spending problem.
This week, Michael Moore offered a simple and elegant solution to our debt problem.
Calling the assets of wealthy Americans a “national resource,†he suggested our problems would all be solved if we could just have access to all that money.
“What’s happened is that we’ve allowed the vast majority of that cash to be concentrated in the hands of just a few people, and they’re not circulating that cash. They’re sitting on the money,†Moore said. “That’s not theirs, that’s a national resource, that’s ours. We all have this… we all benefit from this or we all suffer as a result of not having it.â€
“America’s not broke,†he told a cheering crowd of pro-union protesters in Wisconsin. …
The United States of America has about 400 billionaires. Moore calls them “400 little Mubaraks.†About half of those have less than $2 billion each, and those with a net worth in the double-digit billions is an exclusive club of about 30.
Still, as Moore says, “there’s a ton of cash out there.â€
The grand total of the combined net worth of every single one of America’s billionaires is roughly $1.3 trillion. It does indeed sound like a “ton of cash†until one considers that the 2011 deficit alone is $1.6 trillion. So, if the government were to simply confiscate the entire net worth of all of America’s billionaires, we’d still be $300 billion short of making up this year’s deficit.
That’s before we even get to dealing with the long-term debt of $14 trillion, which if you’re keeping score at home, is between 10 to 14 times the entire net worth of all of the country’s billionaires, combined. That includes the all-powerful Koch brothers ($40 billion between them), the all-powerful George Soros ($14.5 billion), all the Walton family (of the Wal-Mart fortune), Steve Jobs, Oprah (at a paltry $2.7 billion), the Google Founders, Michael Bloomberg, and the Mars family (of the candy bar empire).
Contrary to the left’s favorite talking point, our economic problems do not have anything to do with inequality. The problem is actually the reverse: government is taking away from its rightful owners (and redistributing) so large a portion of this country’s economy that investment, enterprise, opportunity, and economic confidence have been depressed.
The real solution is for government to restrain its appetite and stand aside in order to allow the economy to function and to grow, increasing the general prosperity, lowering costs of goods and services, and making everybody better off.
Karl Smith, an Assistant Professor of Public Economics and Government at the University of North Carolina at Chapel Hill, shares his confidence in the survival, and continued inevitable advance, of the welfare state, even in the face of federal deficits.
In reality, Professor Smith informs us, the only thing really causing Americans to object to wholesale redistributionism is racial animosity.
Contrary to Jonah Goldberg and others who see Canada and the United States as examples of two clashing ideologies, they are actually examples of two different ethic distributions. The United States is not Canada because there is ethnic strife between Southern Blacks and Southern Whites. That strife reduces the sense of moral obligation on the part of the white majority and so reduces government spending.
I want to be very clear that I don’t say this to paint those against social spending as racists. From where I sit I am betting that most of the intellectuals lined up against expanding the welfare state are naively unaware that their support rests upon racial strife. Otherwise they would realize that as America integrates they are doomed. They are fighting as if they believe they have a chance of winning. Given the strong secular trend in racial harmony, they do not.
I point this out also to show why the major Republican strategy for limiting government was doomed from the start and why I am also not particularly worried about Americas fiscal future per se.
I must say that Professor Smith’s perspective on the fundamental character of African-Americans seems a bit excessively pessimistic.
We have here, it seems, a vision of a nation permanently and irremediably divided between between productive, independent and self-supporting whites and needy and dependent blacks, in which the only thing that is going to change is white resentment of exploitation gradually being reduced by social integration and racial harmony. In other words, as we attend school with, mix socially with, and come to know better our helpless, ineffectual darkie neighbors, we will like them better, recognize our moral obligation to support them, and quit complaining about our tax burdens and the federal budget.
Obviously, there does exist a pathological and dependent black subculture, but it is not unique. There are significant sized white and Hispanic welfare-dependent subcultures as well. Dependency is a product of culture, of a cultural aversion to effort and education and of a cultural acceptance of unmarried promiscuity and unwed childbirth, not specifically of ethnicity or race at all. Those cultural pathologies are difficult to change, and they are cultivated rather than opposed by the condescending paternalism of Professor Smith and his ilk.
According to Smith, it is completely impossible to restrain federal spending in the face of the intransigent, irrefutable moral obligation of socialism.
Much of the handwringing about fiscal irresponsibility is a sense of alarm not only on the right, but throughout much of the political center, that these spending cuts are not actually materializing.
But, by what theory of government did you ever believe they would? Governments don’t look at how much money they have and then decide what they want to buy. They decide what they want to buy and then they look for ways to find the revenue.
Divorcing the two – through sustained deficits – was only going to lead to ever increasing levels of debt. This is what we got. At no point was the beast ever starved. The peace dividend lowered government spending growth somewhat, but that was undone by the war on terror. Otherwise spending hummed along, as it always will, with the government buying things the public thinks it ought to buy.
Yet, if this is causing upset stomachs among many of my fellow bloggers it calms mine. Its quite clear how this will end. Racial strife will continue to abate. The public will coalesce around the welfare state and taxes will be raised to meet the cost.
The fundamental do not predict rising debt forevermore. The fundamentals predict a VAT.
This is not to say I am unconcerned about our economic future. Health care costs will continue to eat up more and more of our economy unless something is done. However, trying to convince people that health care is not a social obligation a fool’s errand. The best you could do is convince them we have no obligation to the other. As the other integrates this will likewise prove impossible.
No, people will ultimately believe that health care for all is a social obligation and therefore government will pay for it. There is no more analysis to be done on that part of the question.
And, there you have it. There are people who require other people’s money to meet their personal exigencies. There are the people like Professor Smith who understand that altruistic redistribution of other people’s means on the basis of one’s moral intuitions is obligatory, and that is the whole story.
There is democracy, a hungry mob, and an indulgent and sentimental bien pensant elite, and the rest of us are in the position of the sheep participating in the democratic process with a couple of wolves to decide on what’s for dinner.
Fortunately, I think Professor Smith is as bad a prophet as he is a sociologist and an ethicist. The compelling power of liberal moral intuitions is, I would predict, going to be proven to wane very significantly as the general public inevitably comes to recognize that current (pre-Obamacare) entitlements are unsustainable, and faces a choice between maintaining entitlements and economic prosperity and growth.
You do not have to be Tocqueville to recognize that the fundamental American character has always featured a powerful determination to get ahead, to build a better future on the basis of current effort and sacrifice. It is not sectional ethnic animosity that stands in the way of implementing socialism in the United States, it is the fundamental American character and the values and attitudes that the country was built upon.
We are not Canada, not because we have blacks, but because we are the rebels who threw off the yoke of monarchy in favor of Liberty and individualism, and Canada was, practically speaking, founded by the Tories who preferred being subjects and dependents. We will never be Canada.
And Henry Blodget has produced a graphic illustration to illustrate his contention.
[H]ere’s the one chart you need to see to understand why the US is screwed.
This is the “income statement” of the United States in 2010. “Revenue” is on the left. “Expenses” are on the right.
Note a few things…
First, “Revenue” is tiny relative to “Expenses.”
Second, most of the expense is entitlement programs, not defense, education, or any of the other line items that most budget crusaders normally howl about.
Third, as horrifying as these charts are, they don’t even show the trends of these two pies: The “expense” pie is growing like gangbusters, driven by the explosive growth of the entitlement programs that no one in government even has the balls to talk about. “Revenue” is barely growing at all.
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I’d put it another way.
I’d say that Liberalism and the post-New Deal American Welfare State is screwed.
The accident of the chickens finally coming home to roost from decades-old federal housing policies during the waning weeks of an increasingly unpopular Republican Administration delivered both elected branches of government into the hands of left-wing democrats eager to expand the empire of statism.
Those kinds of democrats do not understand economics and are not prudent and responsible managers. Their response to the economic crisis was to apply traditional liberal pump-priming excuses to enact a massive Stimulus package and to nationalize some automakers and bail out more banks, while driving full steam ahead on creating another new cyclopean entitlement system.
The result is a kind of show-and-tell demonstration, in front of God and everybody, making it perfectly clear to everyone whose intellect is not paralyzed by ideology that what conservatives had been saying all along is perfectly true. Social Security is a Ponzi scheme, and was always destined to fail one fine day when demographics failed to cooperate. That there are limits to the percentage of the national economy which can be taxed and redistributed without drastic costs in growth and prosperity. That there are limits to how much government you can have, how much government can do, how many departments and programs you can create, and how many bureaucrats you can hire.
The music has stopped. The era of the expansion of socialism, regulation, and federal authority is over. We have run out of money. National bankruptcy is within sight. The end of government’s capacity to pay for the entitlement system existing prior to Obamacare is at hand. Obamacare is a dream and a delusion which we could never afford. Our domestic experiment in social welfarism has failed.
The American people are gradually awakening from a troubled sleep. A political avalanche is building which is going to sweep Barack Obama, Harry Reid, and Nancy Pelosi, liberalism and the America left, and the whole New Deal/Great Society philosophy from the national political landscape onto the rubbish heap of history.
My husband has a long record of money problems. He runs up huge credit-card bills and at the end of the month, if I try to pay them off, he shouts at me, saying I am stealing his money. He says pay the minimum and let our kids worry about the rest, but already we can hardly keep up with the interest. …
Signed, Lost in DC
Dear Lost:
Stop whining, Michelle. You can divorce the jerk any time you want. The rest of us are stuck with him for two more years!
