The Math Just Doesn’t Work: We CANNOT Balance Our Budget On The Backs Of The Rich

by John Hawkins | March 17, 2011 2:30 am

The idea that we can have a massive government with a lavish social safety net funded almost entirely by wealthy Americans is an enduring fantasy of the Left. It’s part of the reason they resist cutting spending so strongly, it inspires their demonization of successful Americans, and it’s at the core of the economic policies. However, as Kevin Williamson notes at National Review[1], we simply CANNOT balance our budget on the backs of the rich. The math just doesn’t work:

In fact, in 2006, the Census Bureau found only 2.2 million households earning more than $250,000. And most of those are closer to the Lubbock city manager than to Carlos Slim, income-wise. To jump from the 50th to the 51st percentile isn’t that tough; jumping from the 96th to the 97th takes a lot of schmundo. It’s lonely at the top.

But say we wanted to balance the budget by jacking up taxes on Club 250K. That’s a problem: The 2012 deficit is forecast to hit $1.1 trillion under Obama’s budget. (Thanks, Mr. President!) Spread that deficit over all the households in Club 250K and you have to jack up their taxes by an average of $500,000. Which you simply can’t do, since a lot of them don’t have $500,000 in income to seize: Most of them are making $250,000 to $450,000 and paying about half in taxes already. You can squeeze that goose all day, but that’s not going to make it push out a golden egg.

But like certain other exclusive clubs, Club 250K has an inner sanctum, a special club within the club, the champagne room of socioeconomic status. And that is Club 1: the million-dollar-a-year club. Not the millionaires’ club – lots of the people earning $1 million in any given year do not have $1 million in assets – but, still, a million a year, even in rapidly depreciating U.S. dollars, is not too shabby. But the trouble for liberals is, Club 1 is really, really exclusive: Only 0.2 percent of U.S. households have incomes that high, meaning that there’s only about 200,000 of them. And like Club 250K, Club 1 is bottom-heavy: There are a lot more $1 million men than there are $6 million men. And there are a whole heck of a lot more $6 million men than there are $60 million men.

You want to tax Club 1 to get rid of the deficit, you have to hit each of those 200,000 households with an average tax hike – not an average tax bill, but tax increase – of $6 million. And a lot of those Club 1 households don’t have $6 million in income to start with, much less $6 million left after the taxes they’re already paying.

Every time you raise the threshold for eating the rich, you get a much, much smaller serving of meat on the plate – but the deficit stays the same. The long division gets pretty ugly. You end up chasing a revenue will-o’-the-wisp.

So, what about Lloyd Blankfein and Charlie Sheen and Tiger Woods? What about these people? You can tax the striped pants off of them, but you won’t get enough money to balance the budget. If you’re doing it, you’re probably mostly doing it because it feels good. (And, yes, that does make you a bad person.)

Correction: You can try to tax the striped pants off of them. Lloyd Blankfein and Tiger Woods and Charlie Sheen have a lot of discretion about when, where, and how they get paid. Lloyd Blankfein does not look at a pay stub every two weeks and shake his head sadly, and make sad little sighing sounds; guys like that do something about it. They move to low-tax jurisdictions. They defer. They incorporate. They set up enormous trusts to keep their ne’er-do-well nephews in boat shoes and gin and political office while avoiding taxes. They lawyer up. They will play the game, and they are better at it than you are.

So, how about taxing people who make less than $250,000? That’s probably whom you want to tax, since they are the ones who have the money (Counterintuitive, I know.) The Bush “tax cuts for the rich” cost the Treasury about $800 billion in forgone revenue; the Bush tax cuts for the middle class cost trillions — 2.2 of them, to be precise.

Repealing all of those Bush tax cuts, for rich and middle class alike, gets you about $3 trillion – over ten years. The deficit is running from a third to almost half that every year. Will not balance. Does not compute.

In other words, even if the Left did the full Lenin, there just isn’t enough money there for liberals to pirate — and, folks, does anyone think these people are going to sit by and do nothing while the money they earned is confiscated by socialists? The higher the tax rate goes, the more people will stop working, flee the country, find offshore tax shelters, and pay for lobbyists who’ll insure that loopholes are put into the tax system for them. Can you blame them?

What this means is that there is no easy way out of the fix we’re in. To balance the budget and pay off the debt, not only are we going to have to cut spending dramatically, we’re going to have to raise taxes on the middle class. Neither option is going to be popular and we should certainly do the former before the latter, but eventually, that’s where this is all going because we’ll either have to do that, go bankrupt, or print so much money that you’ll need a wheelbarrow to buy a loaf of bread.

  1. Kevin Williamson notes at National Review:

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