The tax debate rages on, with the more liberal Democrats in Washington insisting on raising taxes for the rich (less liberal Democrats say they’re open to at least a temporary extension of the current tax rates for all). After four years of jacking up federal spending, congressional Democrats and President Obama now want you to believe that they’ve become fiscal hawks because they want to raise tax rates on 2 percent of Americans.
To which The Economist magazine says, hooey:
The irony in this drama is that the money at stake is, in the larger scheme, trivial. Raising taxes on the top 2% of households, as Mr Obama proposes, would bring in $34 billion next year: enough to cover nine days’ worth of the deficit. Indeed, the problem with the tax debate is not that Democrats and Republicans disagree, but that they mostly agree. Democrats think 98% of Americans should not pay higher taxes; the Republicans say 100% should not.
In a budget of $3.5 trillion, $34 billion comes out to a little less than 1 percent. Heck, it’s only a fraction of the annual interest payment on our national debt, and wouldn’t even cover the budget of eight separate federal departments: Defense, Health and Human Services, Transportation, Veterans Affairs, State, Housing and Urban Development, Education and Homeland Security.
The big money is in a middle-class tax hike, for the simple reason that — contrary to what Democrats want you to believe — the middle class receives about three-quarters of the savings from the Bush tax cuts.
Cutting the deficit will also take more than the Republican proposal to return non-security spending to 2008 levels. The impact of that plan would be larger than “taxing the rich” and might inspire some economic confidence rather than sapping it, but those cuts alone would still be woefully inadequate. The broader plan they’re expected to roll out Thursday had better be more impressive than that.
The deficit will shrink to some degree as the economy recovers and more people get back to working and paying taxes. As former Congressman J.C. Watts has said, “We don’t need more taxes, we need more taxpayers!”
To get the rest of the way there, “taxing the rich” won’t come close to sufficing. If you favor tax hikes to close the budget gap, you better be prepared for everyone’s taxes to rise.
Don’t believe anyone who tells you otherwise.