George Rebane

Carnegie-Mellon economics professor Adam Lerrick is the first to warn that Obama’s tax increase plan will finally make the payee Pauls outnumber the paying Peters in the country (Peter/Paul here).  RR readers are familiar with this possibility.  In his 22oct08 WSJ op-ed piece he writes –

Sen. Obama is promising $500 and $1,000 gift-wrapped packets of money in the form of refundable tax credits. These will shift the tax demographics to the tipping point where half of all voters will receive a cash windfall from Washington and an overwhelming majority will gain from tax hikes and more government spending.

We will finally get to the point of no return when it behooves more than half the voters to hire the more-than-willing government to be their goon to rob the “rich”.  And one party has its fortunes riding on being able to marshall such voters through the Big Lie that the higher wage earners have taken more than their fair share of the pie, and getting it back through another lopsided tax increase is the proper way to pay for all the promised government programs.  To make sure that even the considerable number of dim and dimmer in that constituency understand the message, Obama is “promising $500 and $1,000 gift-wrapped packets of money in the form of refundable tax credits” to buy their votes.  Of course, even with these tax increases the promised programs will not be covered and need to be paid through additional asset taxes (remember inflation?).  As Lerrick explains –

The plunder that the Democrats plan to extract from the “very rich” — the 5% that earn more than $250,000 and who already pay 60% of the federal income tax bill — will never stretch to cover the expansive programs Mr. Obama promises. 

All this will not come without consequence.  The top end of taxpayers making up the nation’s high earners and wealth creators is not equally filled with the dull and the dense (although there are some notable exceptions who might have another agenda).  Historically these taxpayers have reacted in predictable ways to excessive government plunder.  Lerrick again –

Calculating how far society’s top earners can be pushed before they stop (or cut back on) producing is difficult. But the incentives are easy to see. Voters who benefit from government programs will push for higher tax rates on higher earners — at least until those who power the economy and create jobs and wealth stop working, stop investing, or move out of the country.

Lerrick concludes with some observations about the world’s reaction to America’s inevitable decline under such policies.

Tomorrow’s children may come to question why their parents sold their birthright for a mess of “fairness” — whatever that will signify when jobs are scarce and American opportunity is no longer the envy of the world.