Monday, April 18, 2011

Obama's Fiscal Folly Speech

I listened to President Obama's speech on Deficit and Debt Reduction several times, trying to come up with the essence of what he was trying to say.  I finally came to the conclusion that the following clip was it.

So his plan, when you take away all the platitude, hyperbole, and demagoguery is that we need to "stop spending in the tax code".  The translation for that is he doesn't want to leave any money on the table in un-gathered taxes.  The only target for that is to demonize the "rich" as thieves who don't pay their fair share.  Here is his statement on "those who benefit most, can afford to pay a little more". He states "everybody pays, but the wealthy bore a little more".

It is difficult to get the exact words, I am not sure even he felt a lot of conviction on that line. First, "Every body pays"?  That is fantasy land, a completely disingenuous statement.  Close to 45% of American households pay no income tax, due to income level in the tax code, or those deductions Obama disdain's.  Do not confuse "payroll tax", your personal payment to the social security system, with the income tax. That is not what is being talked about here by Obama, but he will want to increase that as well.  In fact a lot of that 45-47% that pays no income tax, get tax credits through the income tax system that gives them redistributed wealth.  So they are consumers in the tax code.  Second, "we celebrate their success"?  They are demagogued and slandered at every turn.  I would not want to be in their shoes if we weren't celebrating, it might be more like tar and feathering. Why So Many People Hate the Rich  is explained very well here.
It is despicable, the anti-capitalists complain, that people should be so rich while others are so poor. So they argue that government has to rein in such wealth and impose “social justice.” What they really mean, notes Von Mises, is to give to the frustrated mediocrity “according to his needs.”

This Gallup Poll shows just how much their fellow Americans currently "celebrate" the success of the wealthy
Few Sympathize With Upper-Income Americans, Corporations on Taxes
By contrast, 13% of Americans say upper-income people pay too much and 59% believe they pay too little.

So lets say we do "tax the rich" more.  Let's really sock it to them and take everything, 100%.  The WSJ did that thought experiment
A dominant theme of President Obama's budget speech last Wednesday was that our fiscal problems would vanish if only the wealthiest Americans were asked "to pay a little more." Since he's asking, imagine that instead of proposing to raise the top income tax rate well north of 40%, the President decided to go all the way to 100%.

Let's stipulate that this is a thought experiment, because Democrats don't need any more ideas. But it's still a useful experiment because it exposes the fiscal futility of raising rates on the top 2%, or even the top 5% or 10%, of taxpayers to close the deficit. The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle class—because that's where the big money is.

So to continue this thought experiment a little more, now your employer, the typical small businessman, is broke.  We took everything they make in income.  So he has no reason to work or employ you, even if they had any money to continue the business, which they don’t.  That means you will shortly be unemployed.  So now what do we do?  Next years tax receipts will be very bleak, and practically all of us will be "on the dole" looking for some of that "free Obama money" from his stash.

So how much do the "wealthy" pay compared to the rest of us.

Exactly how much more progressive should it be?  The top 5% are already paying about 60% of the freight for all the others.  It should be obvious we cannot tax our way out of this.  It must be met with real spending cuts, not cuts in the increase like has always been done.  We must remove structural excess that progressives have mistakenly put into our government, and return it to a reasonable constitutional size.

Finally, one of the leading ratings agencies basically just gave Obama a report card on his speech and plan for managing the debt.
Standard & Poor’s issued a stark warning to Washington on Monday, cutting its outlook on US sovereign debt for the first time and throwing more fuel on the raging debate over America’s swollen deficits.

The agency kept America’s credit rating at triple A but for the first time since it started rating US debt 70 years ago, cut its outlook from “stable” to “negative”. A negative outlook means there is a one-third chance of a downgrade in the next two years.
A suitable quote to close with, often atributed to Alexis de Tocqueville, exposes the heart of  "tyranny of the majority"

"A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy."
Well, are we there yet Dad?

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