Saturday, October 27, 2012

Should We Tax the Rich?

The central tenet of Obama's economic platform is to raise marginal rates on the wealthiest 2% of Americans. There are many reasons why this may or may not be a good idea, or a "fair" one.... but let's just assume that it is, and it was implemented. Below is a thought experiment that examines whether this idea even holds water as a plan to reduce the national debt under current spending levels.

The exercise is a basic one... and relies on easily provable demographic facts about our country, as well as well documented phenomena about tax avoidance under given tax regimes. The conclusion: this is not enough. Even if we could somehow take every single penny from the top 2% (while preventing them from moving to the Barbados) we would not have even covered half of the deficit.

Americans deserve a better plan than this - they deserve to be offered a plan which actually presents a solution to our debt crisis. It stands to reason why the Obama camp has offered this plan, though. Why? This is an easy sell. 312 million people in this country would see no tax change if this plan were implemented. In the meantime, we've provided an incentive for the most innovative and resourceful men and women of our country to be less so, as they will not be rewarded as much for the efforts. It is debatable whether this is a reasonable price to pay if this in fact fixed our problems..... but it clearly doesn't. As a recent article in the Wall Street Journal pointed out, which gave similar estimates as to its implications, the $72 billion that this plan proposes to save is "a rounding error" in the grand scheme of the deficits that we are currently facing.

It's not the class warfare or the populism that bothers me when I hear in every Obama campaign commercial or stump speech that "we just want the wealthiest to pay a little more," it's the undeniable fact that the "arithmetic," as Bill Clinton would like to say, just proves that it doesn't come close to addressing the issue.