2/26/2009

Never A Clear Answer

The 2% Illusion

I'll admit that as I watched President Barack Obama's speech Tuesday night I did have a sense of hope that he truly did understand the importance and urgency of the current economic crisis. My boss's words were ringing in my ears from what he mentioned the day before, "Your second job may be your only job next month." As I listened to him explain how he was going to distribute rebates and not raise taxes for essentially the working and middle-classes, his idea of taxing those that make over $250,000 seemed fine to me. However, good intentions and hope have never made money appear out of thin air. "The 2% Illusion" takes the most recent data available from 2006 on the tax revenue generated from the wealthiest portion of tax payers (the same portion President Obama is now proposing we increase taxes on) and finds that if taxed even at 100% of taxable income (generating $1.3 trillion), that was not enough to cover even half of the governments fiscal budget. The current stimulus plan released today has a price tag of $3.6 trillion. That was conveniently left out of Tuesday night's speech. Simply put, yes the rich have deep pockets, but not that deep. It is going to be very hard for President Obama to sell his concern that he does not want future generations to have to deal with paying for the current debt if he simply does not have a viable way to come up with the money.

7 comments:

Trevor said...

I believe that no matter what percentage the entire nation is taxed, whether that is 20% or 50% of all income, the problem lies in politicians not understanding basic economic principles!!! Increasing taxes is not the solution to our problem, nor is printing more money to "stimulate the economy". I feel that sometimes the government wants to have control of every little thing that goes on in our society. I'm reading a book by Milton Friedman entitled, "Capitalism and Freedom" and Friedman argues that the government should have no control over markets and monetary matters because it results in too much centralized power at a national level and that if government is given power over the markets, the nation will no longer be a democratic society but a socialistic society. Have the private sector control the market through the laws of supply and demand act keep the government and its power in check. I agree with Friedman and think that the government has too much power concerning the free market and the consequences could be catastrophic!!!

Dr. Tufte said...

The 2% argument is essentially correct. In fact, it is correct for a far larger portion than 2%. The big lie in our tax system is that the politicians are correctly labeling the ultimate source of tax revenue.

Trevor's comment offers an alternative lens for viewing this discussion: the decentralized aspects of our society create the most value, and the centralized aspects (which are often quite worthwhile) fund themselves by drawing off the decentralized parts.

anthony said...

The problem with taxing the wealthy more is that they have the greatest influence in our society, and they have the option to move out of country easily. So it's simply not that likely to happen. Also, even if it did pass, many people that wealthy have tax professionals working for them and they could likely side step the higher taxes anyway.

Liam said...

I've gotten beyond the idea that our treasury hopes to find away to raise the funds for this debt. My question would have to be "Are we planning on outgrowing the debt" and just forgetting about it? I suppose if we do grow out of this little problem known as a crisis into something better, people will believe that since America still exists by some means, we are good for the money.

Tristan said...

I am typically an advocate of decentralized laissez-faire economic policy and certainly agree that too much government intervention can be counterproductive to a free-market, but can't the opposite be true as well? Take for example the recent crisis in the housing market as well as speculations and hedging, all caused by the absence of governmental regulation. Unbridled greed can also be detrimental to a free-market economy can it not? Granted, under the "invisible hand" theory all will eventually work out but at great pain and cost that no one seems willing to pay. My point then I suppose, is that yes free-market economies are the best but even they need some guidelines and boundaries. They cannot be completely decentralized.

Landon said...

I am not a fan of taking from the rich to give to the poor. Have never been and probably never will be. Why should the people that have found a way to make money be punished? I am currently in the lower income bracket for the United States and I do not know if I will ever get out of it, but I expect to be taxed the same amount as the next guy. Our deficit (USA) is not going to be solved by taking from a very small amount of the population. Taking from the rich will have a cascading effect. If they lose the extra money from their pocket, why not just cut one job and force the rest to pick up the slack. This solution has been a policy for far too long and yet we continue to use it and gain little. For new problems there needs to be new solutions.

Victoria said...

I agree with Trevor. I feel that sometimes the goverment wants to have control of every little thing that goes on in our society. I think goverment should not have too much power for free market.