Obama's Class Warfare Harms America

Americans are once again being confronted with irresponsible demagoguery unleashed by the President of the United States.  Mr. Obama, in a truly despicable effort to maintain his and his party's supremacy (which is the power of the purse), spared no rhetoric in his recent press conference to exploit class envy as a means of garnering votes. 

Unfortunately this approach plays well among the less enlightened and Obama's left-wing base, in the thrall of class warfare.  Enflaming passions and potential violence solely to keep the Democrats and their allies in power.  The reality is these Obama talking points will not solve but will instead exacerbate the current economic woes the country is experiencing.

The wealth of Americans is an obsession with the Left -- even as many are themselves quite wealthy.   The last time the IRS published any statistics on that matter was in 2004, when the economy was doing far better than it is today.  At that time there were 2.7 million adults in the United States with a net worth (total value of all assets less debts and liabilities) in excess of $1.5 million for a total of $10.2 Trillion.  The IRS reference can be found here;  Data Table: All top wealth holders by size of net worth.

If the government were to decide that no one should have a net worth above $1.5 million and would confiscate all wealth above that level, then there would be a one-time windfall of $6.1 Trillion to the Treasury.  As the total national debt is nearly $14.5 Trillion, this action would result in the reduction of the debt to $8.4Trillion.

The long term devastation to the economy would be unfathomable, as who would create jobs and wealth if they knew their assets would be seized above a certain point. 

President Obama and his fellow-travelers know that this tactic of seizing wealth would be counterproductive -- but his class warfare rhetoric made for great sound bites on the nightly news.  Additionally the many on the Left that have a substantial net worth would never willingly sacrifice their resources so easily, as wealth accumulation is second only to amassing political control.    

Instead their argument turns to having the wealthy pay more income taxes every year as a major means of reducing the annual deficit and minimizing the amount of spending cuts necessary to rhetorically balance the budget.  The implication being that if Washington could just get those evil high income earners to pay a little more in taxes all of the spending and deficit problems would be solved.   But would they?

As a starting point lets us stipulate that the projected budget deficit for the current fiscal year is $1,665.0 Billion.  Per the Obama Budget it will be $1,100.0 Billion next year.  The IRS data for the following exercise is found as follows: Section: Tax Generated; subsection, Tax and size of Adjusted Gross Income (2008): Table 3.5

The tax year of 2008 was the last to date that the IRS has done this kind of analysis.  In 2008 the highest marginal tax rate of 35% applied to all AGI above $357,700.00.  In that year the total amount of AGI subject to the highest rate was $662.8 Billion.  The government collected in taxes $218.0 Billion (35%).

Assuming no change in behavior and a general eagerness to pay more, and were Obama and the Democrats to raise taxes on the so-called rich then the potential increase in revenue would be as follows.  If the highest rate of 35% were raised by a factor of 29% to 42%, the additional revenue would be $43.5 Billion, not much of a dent in the $1,665 Billion deficit.   If the rate were raised by a factor of 50% to 52.5%, the additional revenue would be $108.9 Billion.  Still nowhere near enough, so let's just tax it at a rate of 100% thus bringing in an additional $404.8 Billion.  Unfortunately the country is still $1,260.0 Billion in the hole for the year.

Obviously there is a point at which the so-called rich would cease to have any incentive to earn above the highest tax threshold, particularly as the above exercise does not take into account state and local income taxes as well as a myriad of other "revenue enhancers." 

From 1995 to 2008 the total tax revenue to the Federal Government has averaged 18.4% of GDP.  The highest level in history was in 1944(World War II) when it hit 20.9%.   Due to the recession and Obama's failed policies, in 2009 and 2010 that level sank to 14.9% and is projected to be only 14.4% in 2011.  

Over the period 1995 to 2008 actual Federal Government spending averaged 20.9% of GDP, while in 2011 spending will account for 25.3%.  The historical lesson: there is simply no way the Government will change the way the people pay their taxes short of outright confiscation.  The dilemma is spending not taxation.

The Left will argue that the wealthy should pay more even if it only makes a slight impact on the deficit.  Why, other than out of spite?

Lastly, the American economy is driven by consumer spending which represents nearly 70% of all economic activity.  The top 5% of wage earners (above $159,619.00 in annual income) account for 37% of all consumer spending.   Additionally they also pay 58.7% of all income tax revenue to Washington D.C.   Among the reasons there has not been a typical recovery from recessions past is that the upper income spending has not recovered.   Spending by this group is still down 32% from 2008 levels.  This is in great part due to uncertainty with Obama and the Democrats in control.

This reluctance is well founded, as it is this income sector that is being targeted again for more taxes, potentially reducing their ability to spend and invest as well as start-up new small businesses, all of which are a major factor in the creation of jobs.

Obama and the Democrats, in league with the Unions and the radical Left, continue berating the so-called wealthy, their mantra the need to make the rich pay their fair share.  Their diatribes do not offer a viable solution to the country's fiscal woes.  It serves their purpose of dividing the people against each other to maintain their power base.  Their actions and words are despicable and will only serve to dramatically reduce, over time, the American standard of living.