Obama's Anti-Rich Crusade
12:00 AM, Sep 24, 2011 • By IRWIN M. STELZER
Willie Sutton separated over 100 banks from $2 million before he was finally incarcerated in 1952. When asked why he robbed banks, he is said to have responded, “Because that’s where the money is.” Apparently, politicians around the world now want to tax the rich, because they believe, or say they do, that’s where the money is. They’re wrong. The simple fact is that there aren’t enough of the “millionaires and billionaires” who are now the target of President Barack Obama’s campaign trail scorn to make the tiniest dent in America’s deficit. Or in the deficits of other countries that are trying to squeeze the rich.
Politicians in Italy are calling for a wealth tax, and their counterparts in France, Greece, Spain, Portugal, Japan, and Great Britain are pushing a variety of ways to get at the wallets of the rich who, it must be conceded, in several countries are more famous for tax evasion—which goes far beyond legal avoidance—than for tax compliance.
Conservative politicians complain that these measures won’t yield significant revenues from millionaires and billionaires, and will discourage investment and risk-taking. To conservatives, the tax structure is a means of generating revenue in a way that encourages, or at least does not unduly discourage, efficient investment. Not to President Obama and his international counterparts on the left. To them, the guiding principle is fairness, a rather elastic concept, but one that plays well on the campaign trail. It incorporates the ideas that those who benefit most from the economy should pay the most (which they already do), and that in a period of austerity everyone should share the pain of bringing deficits down (something no one denies). And an emphasis on fairness gives an open field to those who see taxation as a means of redistributing income from high earners to those in need of public assistance. These opposing views of what tax systems are supposed to do can be reconciled only by an exquisite balancing of the demands for an efficient use of the tax system and society’s notion of what is fair—and exquisite balancing is not in long supply in Washington these days.
The practical question is whether politicians following the Willy Sutton approach are likely to achieve their goal of cutting the deficit. In America, at least, they won’t. For one thing, their American idol, billionaire investor Warren Buffett, is simply wrong when he generalizes from his own experience of having a lower effective tax rate than his secretary, and wrong again when he says a change in tax policy is necessary to level the field: He and other billionaires who want to pay more are free to mail their checks to the Treasury in whatever amount does not put too great a strain on their petty cash boxes.
“Facts are stubborn things,” said founding father John Adams in 1770, “and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” Obama justifies his proposed tax increases by reference to Buffett and his secretary, who presumably consented of her own free will to having her tax rate published by her boss. The president says that “people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.” When in full flow, he adds, “That’s not class warfare. That’s math.”
To imply that million dollar earners pay lower rates than middle class earners is to ignore a stubborn fact: they don’t. People earning more than $1 million are subject to an effective tax rate of 28.9 percent of their income (total federal taxes, including income taxes, payroll taxes and other taxes), while households making between $50,000 and $75,000 face an average rate of 20 percent, according to data from Tax Policy Center. There are good arguments for treating capital gains, now taxed at a lower rate than income, at the higher income tax rate; for removing special benefits accorded hedge fund operators; and for eliminating lots of features that benefit high earners. But doing so because of a belief that “the rich” are subject to a lower tax rate than the middle class is not one of them.
Conservatives have their own view of the social goals of tax policy. They are troubled by the stubborn facts that almost half of all households pay no income tax and almost 28 percent pay neither income tax nor payroll tax. This makes a large number of voters unconcerned about soaring government spending, and creates a cheering section for increases in benefits.