How Much More?

President Obama has been consistently inconsistent on most issues but has never waivered in his adherence to "fairness."

In the spring of 2008, Senator Barack Obama has this exchange with ABC's Charlie Gibson:

GIBSON: ...you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent.

But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.

And you can't do that for free.

We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year -- $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That's not fair.

And what I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don't have it and that we're able to invest in our infrastructure and invest in our schools.

Forget the fact that the 50 hedge fund managers already paid income taxes on the funds that generated their capital gains; let's suppose that it is in fact NOT fair that these folks only pay 15% on the capital gains, just for argument's sake.

How much pain should the poor endure to generate a fair punishment for the 100 million people (including the aforementioned 50 hedge fund managers) who only pay 15% tax on their capital gains?  How many people have to suffer so that Obama and his allies can FEEL like they are doing the right thing?

When the subject of "revenue increases" is discussed by politicians, they really mean higher tax rates.  Tax rates are the price paid in exchange for earning marginal dollars.  If the price is too high, people will earn less so that they can avoid paying the higher prices.  Hence, the government collects less revenue.

Charlie Gibson understands.

The "non-rich" rarely avoid the higher prices on income and gains.  Poor and middle-class people have to keep working no matter what.  Only the rich can choose to stop.  And they do stop (or move their activities offshore) when tax rates here climb too high relative to the world market for equivalent returns.  Fairness has little to do with it.

The damage to the U.S. economy caused by "fairness taxes" hurts the poor and middle class disproportionately.  So, in effect, Obama's economic plans hurt the very people that he claims to protect.

Here is an example.

Let us suppose a grocer decided to employ "progressive pricing" on his merchandise to salve his conscience and be "fair" to the poor.  People wealthy enough to purchase items in bulk would pay higher unit prices for the larger quantities since, according to the grocer, only the rich can afford to buy in bulk.

Unfortunately for the store owner, customers are not stupid.   Most will purchase just under the bulk limit before the higher prices kick in.  For example: if the grocer charges $1 each for one or two units of canned green beans; and $1.50 each for the all cans above two, most people will purchase one or two units avoiding the extra 50 cent grocer-imposed tax on the bulk purchase.  If a full-scale graduated pricing model is used, unit prices would continuously increase as more items are purchased.

The store will find customers (who don't flee to competitors) making many more trips to the store and buying fewer items during each visit.  Operational costs will rise as more people in the store on more frequent trips require more cashiers and cash-registers to process orders in a timely fashion.

Prices will increase further to cover the lower-than-expected store revenues due to lower volume of goods moving off the shelves.  Hence, the poor will have to pay higher unit prices resulting from the higher level of fairness of the store's pricing policy.

But it only gets worse. 

Suppose that all area grocers adopt the same pricing policy so that customers cannot escape the idiocy.  Assume that the grocers' distributors also adopt the "progressive" pricing system.   Now, grocers with more shelf space and storage will pay a premium for the privilege of buying in bulk.  Our neighborhood grocer now requires more deliveries per week to refill stock that used to come in bulk.  Numerous weekly trips to the store by customers and delivery trucks will not make environmentalists happy.

The grocers' distributors will be forced to raise their unit prices to make up for the diminished volume sold and also to offset their larger delivery costs.  The food manufacturers will follow suit for the same reasons.

At the end of this progressive utopia is a world with massive shortages and much higher prices.  Everybody suffers so that Marxists can say that the society is fair.

In the 20^th-century USSR, everybody was equal.  Soviet citizens were provided their needs by government.  People waited in long lines for bread.  A telephone would take ten years to be installed.  A new car could take even longer.  Prices were affordable but quantities were limited.  In other words, most everybody was equally miserable.

The US unemployment rate has remained at historically high levels as businesses brace for higher tax rates, more burdensome regulation, along with the uncertainties of "ObamaCare" (and associated unfunded mandates, regulations and taxes).  African-American men over 20 suffer unemployment that is roughly double that of Caucasians.  Clearly, this is an agonizing situation for those affected.

We need to ask our dear President just how much pain must the poor endure in the name of fairness.

Any experienced business person knows that you cannot simply raise prices to earn more money.  Somebody has to be willing to pay more for what you offer.  High priced products that have a low value sit on shelves unsold.

Unless the quality of government and the value derived increases dramatically, tax rates should emulate the low margin grocery store rather than the high margin (and lower volume) jewelry store. 

Everybody wins in that scenario - the poor, the middle-class and yes, the rich.

Russell Goldstein is an information and communication technology consultant, amateur economist, patriotic American, and spokesperson for perspective and sanity in government and politics.