by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Victor Davis Hanson‘s latest column for National Review Online explains why the “tax the rich” strategy advocated by President Obama and his supporters would not solve the federal government’s fiscal woes.
Three ways to establish a long-term trajectory toward a balanced budget were under discussion. One was to adopt the proposals of the nonpartisan Simpson-Bowles Commission, appointed by Obama. The commission offered a balanced mix of tax reform and greater revenues, along with cuts in federal spending. But the president was not interested. The commission’s findings now seem stale just two years after they were issued.
Another way would have been to adopt the Bill Clinton–Newt Gingrich compromise formula of the 1990s that balanced the budget through a series of across-the-board tax hikes and spending cuts. But while the administration talked grandly of a return to higher “Clinton-era tax rates,” it never mentioned the necessary second half of the old equation — “Clinton-era spending cuts.” That balanced solution is dead, too.
Finally, we could have just enacted the income-tax rates of the Clinton era now and worked on the spending cuts later. But the administration did not wish to take that third approach either. Instead, it prefers returning to Clinton-era rates only for those who make more than $250,000 a year, while leaving the lower Bush-era income-tax rates — once soundly ridiculed — on all other Americans.
The problem is that such a soak-the-rich move would give the Treasury only about $80 billion a year in new revenue — about 7 to 8 percent of the money needed to make up for the massive annual borrowing. Even with proposed accompanying tax hikes on capital gains and larger estates, we still would fall hundreds of billions of dollars short. There simply are not enough affluent sheep who make more than $250,000 to shear.
Spending is the real problem, but it goes largely unaddressed. Obama’s first-term borrowing of $5 trillion was, in part, designed to stimulate the dormant economy while expanding entitlements to those suffering from the recession. But despite the addition of millions of Americans to those who already were receiving unemployment insurance, disability insurance, or food stamps, and despite massive loans to green industries, the unemployment rate and GDP growth are about where they were four years and $5 trillion ago.
Now the president wants another $50 billion in new borrowing. But why would borrowing another $50 billion jump-start the sluggish economy when 100 times that figure in deficit spending so far has not?