A Perfect day here in Rancho Mirage, and I am ruining it by thinking about Mr. Barack Obama… and in particular one big fact of life: You do not make the poor richer by making the rich poorer.
Our President, Mr. Obama, wants to raise taxes on the rich, or what he calls the rich, supposedly to raise money to help the lower and middle classes. His proposals are complex, but largely they call for an increase in the capital gains rate, changes in the way inheritance is taxed, and a limit on IRAs for high net worth people. The middle class would get a boost in the Earned Income Tax Credit, really a subsidy to lower middle class people, and massive forgiveness of student loan obligations, and a few other bells and whistles.
May I offer a few respectful points?
First, it is cynical political theatrics for Mr. Obama to propose these tax changes right now. We have an overwhelmingly anti-tax GOP Congress. There is no chance that Mr. Obama’s tax increases will become law any time in the next two years. So it’s all just a charade to soothe Mr. Obama’s soak-the-rich base. That’s fine, because politics, like most of life, is largely about charades and myth-making. But let’s not pretend it’s serious government.
Second, and perhaps most important, there is no serious data, nor any serious theory, by which a hike in the capital gains tax rate or more tax on inheritance would make the mill workers in North Carolina or the teachers in New Orleans richer. There just is no mechanism in economics connecting those gears. Raising taxes on the rich might make sense in order to make non-rich people feel emotionally better off. Humans are notoriously envious. But raising taxes on the rich in New York or Silicon Valley might as well be raising taxes on Martians in terms of how it affects real income of the poor. Again, it’s like saying turning the ignition in my car will start my neighbor’s car.
Third, if raising the Earned Income Tax Credit really will make a measurable improvement in working people’s lives, why couple it with raising taxes, which will just get it killed in Congress? If we truly believe we are not subsidizing students enough with the student loan bubble, why not just address that instead of attaching it to a tax bill that will sink it like a stone? If Mr. Obama’s ideas will really help, why smother them at birth?
Fourth, if we really want to address inequality in income in this great country, all history tells us that the way to do it is to encourage education, work, prudent living, and saving. There is absolutely no reason to believe that raising taxes on the rich causes the non-rich to study harder, work longer hours, smoke less marijuana, drink less alcohol, behave in a more disciplined way about money and everything else and pay more attention to their families. So, no meaningful effect on income or inequality.
Mr. Obama’s theatrics here are a carnival sideshow, designed to appeal to the Elizabeth Warren College of Envy. Like way too much of what Mr. Obama and his colleagues have done recently, they are much more about dividing us and whipping up anger than accomplishing anything useful.
It’s extremely unfortunate and even sad, but then that’s politics and always has been.