Fazio: Why eating the rich won’t solve any problems

Ryan Fazio

Liberals, it’s often said, pride themselves on being generous with other people’s money. With their own money, though, the story can be quite different.

The left is conspicuously silent about the likes of President Obama and Warren Buffet taking advantage of every loophole available to them and forgoing the option to donate to the U.S. Treasury above what they owe in taxes.

I would never begrudge a man the right to pay as little in taxes as is legal. However, there is something disingenuous about going around the country lamenting how little other people pay in taxes, but choosing not to pay the amount that you would like to force others to pay.

One has to wonder: If liberals believe the federal coffers is a worthy cause for taking other people’s money, why not use their own? It seems that among our rich liberal friends, leading by example is an anachronism.

Of course, the left will retort that their coercive generosity is about fiscal responsibility. But reality stubbornly indicates that we can neither tax our way to solvency nor confiscate our way to prosperity. The source of our long-term debt crisis is spending, and skirting the issue by raising taxes can only be counterproductive.

Consider that the average federal tax revenues equal 17.8 percent of the total economic pie (GDP) from 1947 through 2008. Average expenditures over that period equal 19.3 percent. But under the Obama administration, spending grew to 25.1 percent of GDP and has not sunk below 23.8 percent since.

While tax revenue has remained below 17 percent for three years, it will rebound to normal levels by 2013 even with the Bush tax cuts in tact. According to the nonpartisan Congressional Budget Office, federal revenue will climb to 18 percent of GDP by 2017.

Meanwhile, spending will grow at unprecedented rates. At our current pace, the CBO reckons that federal spending will reach 27 percent of the economy in a decade and at no point drop below 23 percent. By 2018, the government’s public debt will reach 90 percent of GDP – a point at which many economists believe debt takes a serious toll on economic growth.

By 2030, the U.S. government will owe 1.5 times America’s total economic output, which is more indebted than Greece was when it required its first bailout in 2010.

Higher tax rates don’t necessarily mean more revenue either. From 1951 through 1963, the top income tax rate never fell below 91 percent.

However, federal revenue averaged 18.3 percent of GDP, about equal to revenue under the Bush tax rates in 2007. From Kennedy to Bush II, the top income tax rate gradually fell from 92 percent to 35 percent, and revenue was consistent for over six decades.

So if we can get at least the same revenue with lower tax rates and grow the economy faster, why raise taxes on anyone? Because according to the President, “the rich” just don’t pay their “fair share.”

But by all accounts, the affluent do pay their “fair share” even relative to their high level of income. In fact, America has the most progressive tax system in the developed world.

According to data from the Organization of Economic Cooperation and Development (OECD), the richest 10 percent of households pay about 45 percent of income taxes but earn just about 34 percent of all income.

Liberals like Obama and Buffett still protest that investors pay less in taxes than their secretaries. What they are referring to is the 15 percent rate that Americans pay on capital gains or dividends. But this line of argument shows shocking economic illiteracy from such smart men.

Investors who make a gain from selling stock are already taxed in the form of corporate taxes on that company’s earnings. In the United States, the top corporate tax rate is 35 percent (incidentally the second-highest in the developed world), which stockholders effectively pay in addition to the 15 percent on capital gains.

Sadly, this applies not only to rich hedge fund managers that the president likes to demonize, but also to pensioners who saved their entire lives while working blue-collar jobs.

Ultimately, no matter how strong the liberal reflex to tax the successes of the successful, emotional gratification cannot solve our nation’s fiscal and economic challenges.

Higher taxes on the rich will not solve our debt problems, because insufficient taxation is not the root cause of our long-term liability. The fixation of leading Democrats on raising taxes only obfuscates the fundamental issue: The unsustainable growth of government is chartering us on a course toward Mediterranean-style bankruptcy.

It is thus incumbent upon Republicans and Democrats to make the difficult cuts necessary to make America solvent. If not, it is our generation of Americans that will have the highest price to pay.

Ryan Fazio is a Weinberg senior. He can be reached at [email protected]