Pethokoukis

Under Obamanomics, the 47% — and everyone else — will be paying more taxes soon enough

Image credit: The White House's Office of Management and Budget

Image credit: The White House's Office of Management and Budget

One of these two things has got to give: Either a) the projected future explosion in federal spending is reduced or b) a good chunk of the 47% of Americans who currently pay no income taxes will have to start (or perhaps pay a value-added tax).

Less spending or just about everybody — including the broad middle class — will pay more. Lots more.

That’s the choice. And that is the issue Mitt Romney should be raising.

Why won’t President Obama — unlike Paul Ryan — release a long-term budget plan? Simple. If he did, it would show the only way to realistically pay for the Democratic spending agenda is to eventually raise taxes on pretty much everybody.

See, if you are not going to cut future spending increases and dramatically reform entitlements, raising taxes on just the rich isn’t enough to cover the budget gap. The Buffett Rule is a sham. The Tax Policy Center clearly showed that in a recent tax simulation it conducted:

Instead of trying to balance the budget, we aimed to cut the deficit to a sustainable 2 percent of GDP. And we wouldn’t even start to do the heavy lifting until 2015—to give the country time to regain its economic footing. …

What if Congress just raised taxes for high-income taxpayers? Their rates would go up more than 40 percent under current law and more than 150 percent under current policy. In other words, the top tax rate would return to the bad old days of 90 percent. Even if we go for the Administration’s more modest goals—start with current policy and aim for deficits averaging 3 percent of GDP—those top tax rates would have to more than double, taking the top rate over 75 percent.

And our estimates ignore behavioral response. Research has shown that tax increases lead people, particularly at the top of the income distribution, to cut back their taxable income. While analysts disagree on the magnitude of that income shift, they’d all acknowledge that cranking the top rate up to 90 percent would lead to a massive reduction in taxable income and hence a lot less additional revenue than we found. People facing those high tax rates might work less or hire smart accountants.

So here’s how it might play out: First, Washington raise taxes on wealthy Americans and business. And when those tax hikes don’t supply enough added tax revenue, the politicians then turn to the rest of America and say, “Sorry, we’ve taxed the 1% and business and it still isn’t enough. Now it’s your turn. Let’s talk about what a VAT is …”

Here’s former Obama White House budget chief Peter Orszag on why taxes need to go up on the middle class.

In the face of the dueling deficits, the best approach is a compromise: Extend the tax cuts for two years, and then end them altogether. Ideally, only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it. …  More troubling, middle-class and lower-class families would be saddled with higher taxes. That’s a legitimate concern, but also a largely unavoidable one if we are to tackle the medium-term fiscal problem.

Indeed, Obama has already toyed with the idea of middle-class tax hikes. Here was Obama’s reaction, as recounted in The Escape Artists: How Obama’s Team Fumbled the Recoverywhen aides in 2009 pitched him on letting all the Bush tax cuts expire:

He gave no indication that he was troubled by the plan’s most explosive feature: that it would likely break a central campaign promise—not raising taxes on the middle class—one Republicans would surely wrap around his neck with populist glee.

Every wonder Obama won’t commit to extending the middle-class Bush tax cuts beyond 2013? It is because he wants them to go away.

The left thinks Americans — and not just the 1% — are undertaxed. The wealthy may get hit first, but the 99% will be next.

11 thoughts on “Under Obamanomics, the 47% — and everyone else — will be paying more taxes soon enough

  1. That chart is so-called ‘net public debt’.

    All politicians love to use it, and that one in particular is from the CBO, because it soothes us – and them.

    The problem is; gross debt to GDP is already at 105 %. Net debt is about to hit 80 % and stay there, but net debt is misleading.

    Gross debt includes stuff that the government pays out and owes to it’s citizens. It doesn’t include many of the huge entitlement liabilities.

    So it’s still a relatively soft ball estimate.

    Still, Ken Rogoff’s and Carmen Reinhart’s famous study, where they estimated from a study of several centuries’ financial crises that once a nation gets more than 90 % of debt to GDP, growth slows considerably and stays subdued for between 15-20 years.

    That study was based on *gross* debt to GDP, not net debt to GDP.

    And as I said, U.S. gross debt to GDP(the true measure) is over 105 % already and is going to hit 110 % by 2014. And it then is supposed to stay there for several years before declining very very slowly.

    And this assumes a 4 % growth rate in the decade out. If Rogoff/Reinhart is right, then that is never going to happen and the debt to GDP will either stay at 110-115 % or increase.

    Most likely increase because a recession is inevitable, and debt always increases during one.

    This means we’ll be at 120+ % levels before this decade is over, and that is a conservative estimate. That’s higher than most countries of this world. Only Italy and Greece are higher and look how well things are going for them.

  2. Increased death tax, less return from our 401K. Tort reform is never discussed. Billions of losses annually from fraud & abuse. Billions sent to countries that hate us and worst of all, politics that have been in Washington their whole life.

    • Get off the tort reform issue, already:

      1) tort law is controlled by the States, not the Feds
      2) it accounts for little. Texas put the clamps down on tort law payouts, yet their insurance rates are no cheaper.

      No doubt abuses occur, but the issue is another red herring.

      • We live in a society where people can deny any responsibility for their own actions and sue anyone remotely related because they have “deep pockets”. Millions of dollars are paid out, the majority of which go into lawyers pockets in the name of “justice” and you say tort reform isn’t needed? The money wasted on frivolous law suits could pay the national debt.

  3. We know from Obama’s books that his father thought that a 100% tax rate would be just fine provided that the government provided sufficient services in exchange for those tax revenues.

    Now, “sufficient” is a subjective term, to some extent, but I know that in my own experience, government services are far inferior to private sector services, even when I control for the fact that my experiences in the private sector are experiences of my own choosing and are often designed to be “fun”, whereas I don’t necessarily “choose” to deal with the court system or a city planning commission or any other government entity.

    So, my point is that once you adopt the worldview of the Left, whatever the government does will be “sufficient” even if by objective standards it’s atrocious or unsustainable. If you look at the ease with which the Left has defined the avoidance of an even worse economy, not actual and substantial improvement, as the standard by which to judge Obama’s performance, you get a sense of what this will mean in terms of future messaging from the Left, i.e. that whatever they do, it’ll always be better just because it was done by government, even if the private sector truly could have delivered it better and cheaper. For ignorant individuals with no knowledge of how competition makes everything better over the long run, this messaging will probably be enough to keep them voting Democrat, since trying to prove to them in the abstract that there can be a better way won’t be enough to get them to give up the Democrat-delivered inferior goods and services they do get.

    • DG:

      Re: the worldview of the left –> Well put!

      The progressives will continuously push the country towards the Utopia their professors taught them about. The goal is to have the state control as much of society as possible, so that the federal government dictates what is appropriate, as opposed to the citizens’ own consciences.

      This power grab is evident in Obama’s rhetoric as well as the leftist policies he and his party have advocated and/or put in place (has any “policy”/executive fiat over the past 3 1/2 years had any bipartisan support at all, by the way?).

      The mythology of the left is pervasive in our culture, and steams along unchecked and (mostly) unexamined, especially by those whose duty it is to do so: the media. A large segment of the U.S. population is never exposed to “alternative” (conservative) thought, and these people are therefore, for lack of a better term, brainwashed. The media’s current role as propaganda disseminators and “narrative” crafters also explains the hostility of other nations’ citizens towards the United States; as a Canadian ex-pat, I can attest to the overwhelming use of a leftist lens through which information about the world is delivered to other countries in the West.

      The left, through the U.S. news media, not only controls much of the “free” debate in the American public square, but also manipulates the same debates in other nations, not to mention popular culture as well.

      As citizens, we must begin to hold the media accountable, before it’s too late.

      ~ A.

  4. File under “Duh:”

    “See, if you are not going to cut future spending increases and dramatically reform entitlements, raising taxes on just the rich isn’t enough to cover the budget gap.”

    Which no one ever advocated, Jim. We KNOW we’ll need some entitlement reform to get our ducks in a row over time, but that is a big difference in policy from a hack “economist” who wants to cut marginal tax rates EVEN FURTHER without telling us how he’s going to pay for them, when the VP candidate talks about canning Medicare altogether.

    By the way, the complaints about the tax base not being “broad enough” point out the empty rubbish we get from sites like these: Millions pay no Federal tax because that is the way Mr. Hubbard himself structured the tax code.

    We are still, for the most part, living under the prior administration’s tax code. Yet, paradise still escapes us.

    So if Mr. Pethokoukis thinks LOW taxes should help, NO taxes should be even better, right?

    No, they have to be IMPOSED to “broaden” the tax bases, especiallly if you clean toilets for a living. Those who use the tax code to write off their dressage horses need not worry.

  5. I am dumbfounded on a daily basis as to why the simple mathematics can’t be addressed in a public forum. Mitt Romney’s comments recently were poorly worded, but nonetheless are 100% accurate – some might claim that it’s misleading to say that over half pay no taxes because of of payroll & Medicare/Social Security, but you can torture the numbers and get them to confess to anything.

    Our country is being run into the ground intentionally by a political campaign focused on portraying anyone worried about the debt as a racist/uncaring American. Everyone will be required to pay more in taxes, from low to high income brackets. Democrats lie in our faces by saying “millionaires & billionaires”, because no amount of taxation would reduce the debt and the politicians on both isles recklessly spend money on their own pet-projects.

  6. A VAT will probably start at around 10%, and it “just won’t be enough”, and will be raised in increments until the vast Middle-class will be barely subsisting. But, it will solve Michelle’s obesity obsession.

  7. Economics 101 “you can’t get money from somebody who ain’t got none”. It’s more jobs and less government. Even the dressage horses have to be fed, trained and cared for thus creating a job for someone who might otherwise be on government welfare programs. I doubt that even the trust fund kids take the money and bury it in the back yard.
    Of course if you believe that all of the money belongs to the government in the first place we are all tax cheats.

  8. Mathematics always wins versus politics. If someone is just realizing we can’t balance without future revenue growth they are unfortunately behind the curve.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>