RUTHFULLY YOURS

On April 3, Obama went after Representative Paul Ryan and his budget, which Obama linked explicitly to Romney. Ryan’s budget actually addresses the key problems of out of control government spending and rapidly metastasizing entitlement costs, the looming fiscal train-wreck that Obama and the Democrats have avoided dealing with for over 3 years. Masking this dereliction of duty, Obama in his speech instead piled up lie after lie about Ryan’s budget, spicing the whole with question-begging rhetoric. Financial aid cut for 10 million college students, 1,600 fewer grants for Alzheimer’s and AIDS research, clean energy technology cut by a fifth, 200,000 pre-schoolers banished from Head Start, 2 million mothers and children denied healthy food, cuts to the Department of Justice and the FBI, national parks closed, air, food, and water safety compromised, less accurate weather forecasts, more flight cancellations at airports––this whole catalogue of apocalyptic disasters is a patent lie, one worsened by the charge that Ryan’s budget is “thinly veiled social Darwinism” designed to further enrich the already bloated 1% by ruthlessly cutting government programs. In fact, the Ryan budget increases spending from $3.6 trillion this year to almost $4.9 trillion in 2022.

A week later, in Boca Raton Florida Obama was at it again, beating the drum of tax “fairness” as he proposed imposing the “Buffet Rule” on those earning more than $1 million to force them to “pay their fair share,” which Obama puts at 30%. This idea that rich Americans are tax deadbeats was given traction by billionaire Warren Buffet, the tax-shelter king who popularized the myth that millionaires pay taxes at a lower rate than ordinary Americans because the rich pay most of their taxes at the capital-gains rate of 15%. In actual fact, as NRO points out, Americans in the $40-$50 thousand income bracket pay an effective rate of 3.2% in federal income tax, 80% of U.S. households are taxed at a rate less than 15%, and half pay nothing at all. As for those dastardly millionaires, the rate for most of them is already 30%, while 10% pay less and another 10% pay more, according to the Congressional Research Service.

Worse yet, the amount of revenue the Buffet Rule would raise is $5 billion a year––“or less than 0.5% of the $1.2 trillion fiscal 2012 budget deficit and over the next decade a mere 0.1% of the $45.43 trillion the federal government will spend,” the Wall Street Journal reports. Obviously, this is not enough revenue to “stabilize our debt and deficits for the next decade,” as Obama has claimed. In fact, to close the deficit in 2035, when entitlement spending will blow up the budget, tax revenues would require a surreal rate of 223% on the highest tax bracket. Nor will this Buffet Rule pittance do anything to rein in federal spending, projected to reach 50% of GDP by 2060 because of runaway entitlement costs destined to expand even further if Obamacare survives. Finally, the idea that the extra revenues generated by the Buffet Rule would be used to lower the deficit flies in the face of history, which shows that every dollar of increased revenues leads to at least $1.17 of government spending. As Milton Friedman once said, “Politicians will always spend every penny of tax raised and whatever else they can get away with.”

Yet this is just the beginning of Obama’s economic ignorance and mendacity. Increasing the capital gains tax rate, as the Buffet Rule perforce does, and letting the Bush tax cuts expire would target small businesses and lessen the investment capital needed to grow the economy and create jobs, at the same time it would fail at increasing tax revenues, which historically have increased when tax rates are lowered. Consider what happened after Ronald Reagan’s tax cuts. In 1981, the top 1% paid 17.58% of all federal income taxes; in 2005, this same cohort paid 39.38%. In 1981 the top 1% paid $94.84 billion (in 2005 dollars); in 2005 they paid $368.13, an increase of 288%. During this same period, taxes paid by the bottom 75% went from 27.71% of all tax revenues to 14.01%. More recently, the Bush tax cuts resulted in a 44% increase in revenues from 2003-2008. “The only conclusion,” Arthur Laffer concluded in 2008, “one can come to is that by raising statutory tax rates on the rich as proposed by the Democrats, the effective individual income tax rate won’t change, but the comprehensive household income earned by this group will fall, thus resulting in a sharp decline in tax receipts from the very highest income earners. If you want to get more tax revenues from the rich, you’ve got to make the rich richer, and to make the rich richer, you’ve got to lower tax rates.”

All this class-warfare rhetoric has nothing to do with fixing our economic problems by reducing the deficit, curbing government spending, and growing the economy. Nor is the issue “fairness.” By any metric, the U.S. already has a fair tax system, given that the top 10% pay 70% of all federal income taxes, while nearly half pay nothing. Indeed, the U.S. has the most progressive tax system among 24 OECD economies, as measured by the ratio of share of taxes paid to share of income among top earners. For example, the top 1% of earners paid more than 38% of all federal income taxes, but they earned 20% of all income. As a result of this burden on the highest earners, the top 10% of U.S. earners pay 35% more income taxes than does the same cohort in progressive heartthrob Sweden, and 22% more than in France.

This rhetoric of “fair-share,” then, is really about Obama’s reelection and his leftist ideology. The President has calculated that he can win votes with faux-populist attacks on “fat-cats” and thus obscure his tax-and-spend agenda whose ultimate aim is to increase the power of the government. In that way he can benefit his base and create ever more clients beholden to the feds. That’s what all this talk about “fairness” really means: redistributing income, always the way the enemies of freedom have gained power. As history shows, when democracies start to devolve into tyranny, unscrupulous leaders arise to foment class hatred by pandering to those who, as the Greek historian Polybius wrote, are “habituated to feed at the expense of others, and to have [their] hopes of a livelihood in the property of [their] neighbors.” That is what the “Buffet Rule” is all about: creating the “soft despotism” Tocqueville warned about.

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