President Obama has driven spending and deficits to historic levels in just two years since taking office. Not content to stop there, his budget for the next 10 years keeps spending at record levels and piles up unprecedented amounts of debt in the process. To partially offset his massive overspending, the President wants to raise taxes on “the rich.” His class warfare plan can take him only so far, however, since the rich don’t earn enough to make up the difference for all the spending he plans.
Obama’s current tax hike plan would raise the top two income tax rates from 33 and 35 percent to 36 and 39.6 percent, respectively. This tax hike will take effect on January 1, 2011, if he has his way and will slow the already badly struggling economy. This will keep unemployed Americans out of work longer and suppress the wages of those fortunate enough to retain their jobs. In fact, the higher tax rates Obama calls for will destroy an average of 800,000 jobs per year by the end of the decade and lower incomes by $720 billion over that same period.
Over the next 10 years, the Obama tax hikes will take almost $700 billion from taxpayers. That is only 8 percent of the nearly $9 trillion President Obama’s budget adds in debt over that same period. Low tax revenues are not the cause of the debt explosion; spending is. The Obama budget raises spending to almost 25 percent of GDP—well above its historical average of 20 percent. Tax revenue will soon exceed its historical average of 18 percent of GDP.
President Obama has repeatedly expressed a desire to sock it to the rich to cover for his profligacy, so it stands to reason he could stick them with additional tax increases to cover his gargantuan budget shortfalls. The President shows no signs he wants to reduce spending to lower the deficit, so tax hikes remain his most likely prescription. No matter how much he wants to “spread the wealth around,” if he goes the tax-the-rich route, he is in for a rude awakening.
Closing the more than $1 trillion deficit Obama’s spending would produce in 2020 by taxing only the rich would require a top income tax rate of 134 percent. Of course it is impossible to tax more than 100 percent of any taxpayer’s income. More importantly, any rate even approaching such a dangerous level would destroy the economy. Period. So even if it were mathematically possible to tax more income than the rich earn, there would be none of it left for the government to confiscate.
There is a better way. If President Obama and Congress committed to spending reductions, the deficit could be lowered to more acceptable levels without raising taxes a dime. If Congress and the President lowered spending to its historical average of 20 percent of GDP, the deficit would fall to a more manageable level, the national debt would stabilize, and an impending financial meltdown would be averted. Whether the President can let go of his soak-the-rich mentality and take this more sensible approach remains to be seen.