10.01.2008 0

The $5 Trillion Question

  • On: 10/23/2008 17:11:58
  • In: Taxes
  • By Robert Romano

    ALG Editor’s Note: In “The $5 Trillion Question,” ALG News reported that Barack Obama would increase spending by $1 trillion in his first year of office. This was not accurate. The $1 trillion would be spread over the four years of his tenure in office, as chronicled by James Pethokoukis in “Obama’s Trillion-Dollar Spending Plan.” But, to pay for it, he’d still have to raise taxes on the middle class, and not just the top 5 percent, or run deficits, in which case the middle class gets taxed anyway either through inflation or higher taxes.

    “Ninety-five percent of Americans would get a tax cut under my proposal.”—Senator Barack Obama (D-IL), September 5th, 2008.

    A lot of attention has been placed in recent days to Barack Obama’s plans to raise taxes on the top 5 percent of wage earners. The Illinois Senator assures the American people that he, as President, will not raise taxes on everybody else—just those at the tippy-top of the income spectrum.

    Never mind that upwards of 38 percent of Americans do not even pay income taxes. Or that the top 5 percent of wage earners are employers and investors who contribute significantly to the economy.

    Let’s simply consider the claim that, somehow, only the top 5 percent are going to have their taxes raised. As my favorite arithmetic teacher would say, “Let’s do the math.”

    The federal budget for Fiscal Year 2008 wound up being $2.98 trillion, with a deficit of $454 billion. For the sake of argument, let’s add to that the $850 billion bailout package that Congress enacted on October 3rd. After all, it was conveniently passed just three days after the annual deficit was calculated.

    Again, hypothetically, let’s also assume that the Treasury makes no money back on the Troubled Asset Relief Program. Then the total budget for the year would jump to $3.93 trillion, with a deficit of $1.3 trillion.

    Let’s also assume that, for the sake of argument, the budget does not shrink next year. After all, the federal government did just acquire about $5 trillion in risk from Fannie Mae and Freddie Mac. It stands to reason that in these troubling times, some of those debts are going to go sour, and there will be more bailouts next year. So, let’s assume the same amount just to keep things simple.

    Now, methodology aside, Senator Obama is proposing approximately $1 trillion in new federal spending. You know, all those new welfare entitlement programs. Whammo. The budget then jumps to $4.93 trillion—nearly a whopping $5 trillion!

    So here’s the $5 trillion question: Where does the Senator think he’s going to get the money to pay for all of that new spending?

    Here’s a “modest” proposal: Let’s just say he taxed the top 5 percent of wage earners at a confiscatory, stealing rate of 100 percent. That’s right, the government would just steal—I mean, “appropriate”—every bit of taxable income from the richest Americans. Take every penny they earn.

    According to the Tax Foundation, the top 5 percent’s Adjusted Gross Income in 2006 only totaled $2.97 trillion. So even if the Senator wanted to milk them for everything they earned, he’d still be $1.96 trillion short in financing his $4.93 trillion budget.

    So, where does everybody think he would get the other $2 trillion from?

    Perhaps through the corporate taxes, the capital gains tax, the gasoline tax, etc. but perhaps not. After all, once completely robbing the top 5 percent, it’s probably safe to assume that they would not have any money to actually invest in businesses or stocks, so therefore, revenues from corporations and capital gains would plummet dramatically. Heck, the economy just might grind to a halt.

    Besides, U.S. corporations already pay the second highest tax rates in the world on a national basis—or the highest in the world if you factor state corporate tax rates—so they cannot go much higher. Capital gains currently already stands at 15 percent, and if Congress does not act, will rise to 20 percent in 2011. That, coupled with gasoline taxes, and neither can go much higher without severely hurting the economy and middle America.

    So, that money would have to come from somewhere. But where, oh where, could that money be? Let’s set that aside for a moment.

    Bringing this whole example back to the reality that under the Obama tax proposal, he has not yet, to our knowledge, proposed simply taking every penny that the top 5 percent earn. The same reality where the top 5 percent according to the same Tax Foundation study only contributed $615 billion in income taxes in 2006.

    Even if a President Obama doubled that number to $1.22 trillion in income taxes collected from the top 5 percent, and the rest of revenue generated held steady at $2.523 trillion, revenues would still only grow to $3.138 trillion. Even then, he’d still be about $1.79 trillion short in financing the $4.93 trillion budget.

    So, poppycock. Of course he’s going to raise taxes on the middle class.

    Robert Romano is the Editor of ALG News Bureau.

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