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Obama's Anti-Rich Crusade

12:00 AM, Sep 24, 2011 • By IRWIN M. STELZER
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The amounts that would be raised by the president’s proposals from “millionaires and billionaires” might come to the rounding error in the national accounts. The major impact would be on individuals earning more than $200,000 annually and families earning more than $250,000. This group accounts for 3 percent of all tax filers, earns 30 percent of all income, and already pays 52 percent of all income taxes. Most important, 65 percent report some business income. Because a good deal of income of this group comes from running small businesses, 40 percent of the revenues from the higher taxes Obama would impose would come from small businesses, according to a study issued by the office of Senator Jim DeMint, a South Carolina Republican. In short, the president is proposing to raise taxes on many of the job creating entrepreneurs in America.

The good news is that a bipartisan consensus is forming to push radical tax reform such as was engineered by both parties in 1986, generating enough cash to allow the top individual rate to be cut to 28 percent from 50 percent. The plan being mooted in Congress would, among other things, remove or place limits on deductions of interest on home mortgages, end special tax advantages for the oil and other industries, and end the practice of allowing hedge fund operators to treat part of their incomes as capital gains. The additional revenue generated by these changes would be used to lower overall tax rates on individuals and corporations.

However desirable such a policy might be in the long run, it is unlikely to do much to spur growth in the near term. Which leaves us with Willie Sutton’s advice versus the hard fact that the rich are not where additional tax revenue is, and the decision of the Federal Reserve Board to follow the suggestion of Chubby Checker and “do the twist”—move $400 billion of its $2.65 trillion securities portfolio into long- from short-term Treasury IOUs in the hope that still lower long-term rates will somehow spur investment. Most observers think that the Fed should get an “A” for effort and good intentions, but a far lower mark for results.

With Sutton and Checkers not useful as advisers, we are left with John Maynard Keynes, whose borrow-and-spend method has not seemed to work in current circumstances and as applied by this administration, and its opposite, austerity, now opposed by the International Monetary Fund because it seems to stifle growth and increase rather than decrease the deficit-to-GDP ratio wherever it is selected as the policy that will fix things. To say policy makers are out of bullets is to put their impotence in polite terms.

Just when George Soros says we are already in a recession. Whether or not he is correct, it certainly feels like we are. The IMF and the Fed are projecting anemic growth, and there isn’t much difference from “the feel” of that and of a recession, certainly not for the 25 million looking for full-time work, or their increasingly nervous relatives and neighbors, witnesses to too many foreclosures.

The sense among informed observers here in Washington is that the president will get little or none of what he is asking for—his own staff privately says he has no expectation that a Republican House of Representatives will join his anti-rich crusade. His proposals are seen as a campaign ploy to please his sullen left, but he runs the risk of antagonizing the independent voters whose support put him in office. The last candidate to run as a class warrior was Al Gore, and he is reduced to searching for audiences for his increasingly vitriolic, profanity-laden presentations on global warming.

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