Economist Adam Lerrick asks whether the tax code is at a tipping point, and if Barack Obama will shove it over the edge:
What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes? Economists Allan Meltzer and Scott Richard posed this question 27 years ago. We may soon enough know the answer.
Barack Obama is offering voters strong incentives to support higher taxes and bigger government. This could be the magic income-redistribution formula Democrats have long sought…
Other nations have tried the ideology of fairness in the place of incentives and found that reward without work is a recipe for decline. In the late 1970s and throughout the 1980s, Margaret Thatcher took on the unions and slashed taxes to restore growth and jobs in Great Britain. In Germany a few years ago, Social Democrat Gerhard Schroeder defied his party’s dogma and loosened labor’s grip on the economy to end stagnation. And more recently in France, Nicolas Sarkozy was swept to power on a platform of restoring flexibility to the economy.
The sequence is always the same. High-tax, big-spending policies force the economy to lose momentum. Then growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. The central bank tries to solve the problem by printing money. International competitiveness is lost and the currency depreciates. The system stagnates. And then a frightened electorate returns conservatives to power.
Barack Obama couches all of his talk in the language of ‘fairness;’ of trying to make sure that everyone gets ‘a slice of the pie.’ But in employing the rhetoric of redistribution, class warfare, and yes, socialism, Obama ignores how progressive the tax code already is. It’s often said that when you rob Peter to pay Paul, you can always count on Paul’s support. In trying to push the fairness needle further, Obama is attempting to lock that rule in as a foundation of tax policy.
As the Tax Foundation points out, the tax code already redistributes $1 trillion from the top 40 percent of earners to the lowest 60 percent. How much is enough for President Obama? And what happens if we discover, as France, Germany, the U.K., and much of Europe did, that you will destroy the economy and ruin government finances if you allow the bottom half of earners to vote themselves whatever benefits they want, at the expense of the minority.