Obama's "soak the rich" plan misses mark

(Center for American Progress Action Fund)

When President Obama gave his long-awaited speech on deficit reduction today, it was predictable that his prescription for curing the government’s spending problem would be to raise taxes.  There are several problems with this strategy that the president does not address.

First and most important is that taxing the wealthy cannot solve our spending problem.  The Wall St. Journal has noted that even if the IRS confiscated 100 percent of the taxable income of all Americans who earn more than $500,000, it would only provide $1.3 trillion in new revenue.  They further noted that confiscating all taxable income over $75,000 would barely cover the $4 trillion that Obama and Congress spent in 2010.  Obviously, a 100 percent tax rate is not possible.  The US needs economic growth to boost tax revenues; raising taxes on “the wealthiest Americans” cannot and will not solve the problem.

The second problem with President Obama’s strategy is that very few rich people are stupid.  Most of the wealthy that are stupid employ financial advisors who are not.  When taxes go up on millionaires, it usually follows that there are fewer millionaires around to tax.

As an example, another Wall St. Journal article details how after Maryland enacted a millionaire tax in 2008, the state found that a third of its millionaires had flown the coop.  It is likely that many of them settled in states like Texas, Florida, or Tennessee where there is no state income tax.  If the federal government raises taxes on millionaires, there will be nothing to stop them from transferring their residences to tax havens in the Caribbean or elsewhere.  After a tax increase, Uncle Sam could easily end up collecting less money instead of more as Maryland’s state government did.

Many wealthy and politically savvy Americans already use the friendlier tax laws in other countries to shelter money and assets.  One prominent US tycoon who is rumored to be considering a presidential run is well known for flying around the country in a privately owned 727 with a Bermuda registry.

Finally, voters should ask themselves why President Obama is pushing for a tax increase on the wealthy given the fact that the wealthy typically support Democrats by large margins.  It is not logical that the president would bite the hand that feeds the Democratic Party with millions of dollars in campaign donations. 

The obvious answer is that the wealthy won’t really be paying the tax rates that President Obama proposes.  Any increase in tax rates is likely to be quietly accompanied by new tax shelters, write offs, and other assorted means of avoiding a bigger tax bill.  It is unreasonable to assume that rich, powerful, and influential people who helped put President Obama in the White House and most Democrats in the respective congressional seats will sit idly by and let the government take their money.

The biggest effect of a tax increase, even if it is solely aimed at the wealthy, would likely be to slow the recovery and possibly even plunge the economy back into recession.  If money is removed from the economy, whether by being sent to the government or fleeing to tax shelters, the economy shrinks.  Less capital is available to businesses to hire and expand.  The effect trickles throughout the economy as sales fall, followed by wages and employment rates.

Nevertheless, the siren song of increased revenues, often a code phrase for tax increases, can infect the right as well as the left.  Georgia’s own Senator Saxby Chambliss is rumored to be considering a compromise budget that might include tax increases as a member of the “Gang of Six.”  However, Chambliss says, “We’re not talking about raising taxes….  We’re talking about lowering tax rates.”

America’s problem is not that we are taxed too little.  The problem is the out-of-control spending of both parties.  The solution is not tax increases that are too little, too late and in any case would trigger more spending.  The only practical solution is to drastically cut spending.  The solution, however, is an anathema to the president who, in less than two years, added more to the national debt than the first forty US presidents combined. 

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Obama derangement syndrome

The Bushes with the Obamas in 2008.

Back in the days of George W. Bush’s presidency, Charles Krauthammer discovered a new mental illness:  Bush Derangement Syndrome.  Krauthammer defined the disease as “the acute onset of paranoia in otherwise normal people in reaction to the policies, the presidency -- nay -- the very existence of George W. Bush.”  It was characterized by the willingness to believe any outlandish theory or conspiracy about President Bush and the act of picking apart the president’s every utterance and action to find something to criticize or disagree with.  If President Bush had said the sky was up, his critics would have found reason to believe otherwise.

In the conservative state of Georgia, BDS was not as prevalent as it was in blue states such as California and New York.  Nevertheless, in the waning days of the Bush Administration, BDS sufferers even plagued the state that had voted for Dubya in both presidential elections.  As my parents, who run a small secondhand shop in Dewy Rose, Georgia told me, people discussing politics prior to the 2008 elections (and in the wake of record gas prices and the early days of the Great Recession) of  frequently held to the theory that “it can’t get any worse.”  Two years later, we have proved that it can always get worse.

Now, after almost two years of unemployment hovering just below ten percent (and higher in Georgia) and an unresponsive and hyper-partisan government, public opinion has come full circle.  At some point over the past several months, Obama Derangement Syndrome has become epidemic. 

Like Bush Derangement Syndrome before it, Obama Derangement Syndrome is characterized by a complete and utter inability to find (or even seek) common ground with the president, no matter how sensible his position might be.  Victims of OBS go beyond disagreement on mere matters of policy and move toward an intensely personal and visceral (and very unappealing) dislike for the man in the Oval Office.

The many conspiracy theories surrounding President Obama are a symptom of OBS.  One of the first was the idea that he was a closet Muslim.  Next came conspiracies that Obama’s health care reform law incorporated a requirement for rationing health care based on a person’s body mass index, that it requires Americans to have microchips implanted, and that it established a secret police force akin to the Gestapo.  These conspiracies are easily debunked with minimal research (and actually reading the law), so their persistence is only accounted for by willful ignorance.

This type of willful ignorance was also exhibited by sufferers of Bush Derangement Syndrome.  Bush battled charges of complicity in the 9/11 attacks, faking intelligence about Iraq’s WMD programs, and even purposely allowing black Americans to suffer and die in the wake of Hurricane Katrina.  BDS in the media reached a zenith when CBS and Dan Rather rushed to air a story critical of President Bush’s Air National Guard service.  Unfortunately, the story was based on forged documents and ultimately cost Rather his job.  Military records ultimately showed that Bush fulfilled his obligation to the Air Force.  The facts show that the other Bush-era conspiracies are baseless as well.  Popular Mechanics published an in-depth investigation debunking 9/11 conspiracies.  Investigations into pre-war intelligence by the US Senate as well as by the British government failed to find any intent to mislead.

Finally, conservatives have criticized President Obama even when he continues Bush-era policies.  GOP chairman Michael Steele was among conservative critics of President Obama’s decision to delay his promised retreat from Afghanistan.  Continuing President Bush’s policy of actually trying to win the war should please conservatives, as well as anyone who thinks that Muslim radicals are a danger to the US.  Calling it “Obama’s war” misses the point that Afghanistan is America’s war against terrorists who are trying very hard to kill large numbers of us and topple our society.

More recently, many conservatives were critical of President Obama’s compromise with Republicans to extend the low Bush-era tax rates.  Dick Morris called the compromise a surrender by Obama akin to Appomattox, yet many conservatives, instead of saluting Obama for doing the right thing for the country found fault with the deal because the surrender was not total enough.  In view of the liberal ire raised for the temporary extension of the tax rates (which will be an issue in 2012) and the fact that Democrats still controlled both houses of Congress, a deal more generous to Republicans was unlikely to have passed.

Make no mistake (as the president might say), Obama Derangement Syndrome is on the rise.  Even as his approval ratings continue to fall, conservatives should judge his actions and policies based on their merits rather than a knee-jerk reaction to find fault with anything he does.  Such obviously partisan positions did not help the Democrats defeat Bush who won more total votes, a larger percentage of the popular vote, and more electoral votes in 2004 after suffering years of partisan attacks than he did in the election of 2000.  If conservatives want to defeat President Obama and his wrong-headed policies, then their opposition should be thoughtful and objective, not simply a matter of criticizing anything and everything.  When he does the right thing, he should be supported.

BONUS:  I can also support President Obama in his attempt at humor in a May 2010 speech at the White House Correspondent’s Association Dinner.  Presidents have a history of getting themselves into trouble when they try to tell jokes at this function.  Presidents Bush and Obama were no exceptions.  President Obama, speaking to the Jonas Brothers, said, "Sasha and Malia are huge fans, but boys, don't get any ideas. Two words for you: predator drones. You will never see it coming." 

Obama was immediately criticized by liberal anti-war bloggers for joking about Predators.  Conservative bloggers mostly pointed out the inconsistency of the mainstream media’s focus on Bush’s joke while giving Obama a pass.  Totally missed by everyone was the fact that Obama’s joke was a funny one.  Any father of a daughter can identify with wanting to protect her from teenage boys.  I am totally sympathetic and my daughter is only two-years-old. 

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Pivotal week on Capitol Hill

The past week produced several political events of great political significance in Washington.  The Republicans were able to exercise influence far out of proportion to the size of their still outnumbered caucus to shape fiscal and tax policy for the next few years.  They can thank the Tea Party for this.

The first major news of the week came from Virginia though, where US District Judge Henry Hudson ruled that the individual mandate to purchase health insurance was unconstitutional.  If this ruling is upheld when it ultimately is likely heard by the Supreme Court, it will render Obamacare unworkable. 

The individual mandate was needed to keep the insurance companies from being run out of business when the law changes to require that they cover pre-existing conditions.  Without the mandate to force healthy people to buy insurance, there will not be enough premium revenues to pay the medical bills of unhealthy people who wait until they are sick to buy insurance.  Companies, and governments, cannot continue to exist if they pay out more money than they take in.

Harry Reid lost on the spending bill, but passed DADT.

The second major story of the week was Senate Majority Leader Harry Reid’s inability to sway Republicans into supporting the omnibus spending bill.  Initially, several Republicans (although none from Georgia) had planned to support the pork-filled bill.  However, as revelations of the bill’s earmarks and pork-barrel spending became public knowledge, Republican support evaporated.  The echoes of last month’s landslide election, as well as the primary election loss of Senator Bob Bennett (R-UT), one of the Republicans who planned to vote for the bill, were obviously a factor in the revolt against Reid’s bill.

Coming on the heels of the spending bill’s defeat, President Obama signed the tax compromise to extend the Bush-era tax rates and prevent a January 1 tax increase for all Americans.  Many Democrats tacitly admitted that the Keynesian demand-side policies of President Obama have not worked as well as they had hoped (or at all).  Larry Summers, director of the White House Economic Council even noted that “failure to pass this bill in the next couple weeks would materially increase the risk that the economy would stall out and we would have a double-dip,” which is exactly what Republicans have been saying for years.

Similarly, much of the Democratic opposition was on the grounds that the deal would increase the deficit.  The deal is slated to add $857 billion to the deficit over ten years, which is very misleading since it is only in effect for two years.  This estimate does not take into account the fact that the economy would likely shrink if taxes were increased, but will probably continue its slow growth under the deal.  It also doesn’t take into account the fact that the wealthy would move their money to tax shelters if tax rates were increased.  Republicans should remind Democrats of their newfound zeal for deficit reduction when the next spending and appropriations bills are debated. 

The final earth-shattering moment this week was the repeal of the “Don’t Ask-Don’t Tell” (DADT) law.  This was a Clinton-era compromise that allowed military personnel who were homosexual to remain in the armed forces provided they remained silent about their sexual orientation.  The policy does not change immediately, but the new law sets in motion a gradual elimination of DADT.

Military DADT publication

The repeal of DADT was an issue in which some left-leaning and social libertarian Republicans broke ranks with the majority of their party.  Eight Republican senators and five Republican congressmen voted to repeal.  None of Georgia’s Republican delegation voted to repeal DADT.

The new law may have important (and negative) implications for national security.  In the midst of a two-front war and with other hot spots such as North Korea and Iran simmering, almost twenty-five percent of American military personnel indicate that they would not or might not re-enlist if DADT were repealed.  Ten percent of those polled indicated that they definitely would not re-enlist.  A loss of one in ten US military personnel would be greater than the loss of the entire US Marine Corps.

A big part of the problem is that many soldiers view homosexuality as immoral.  This is based on the teachings of most of the world’s major religions.  Military chaplains have long been concerned about freedom of speech and religion if DADT were repealed.  Their primary calling is to preach the Gospel to soldiers and a zero-tolerance policy for dissenting against homosexuality would put their roles into conflict. 

The conflict between freedom of religion and gay rights in the military is a harbinger for the coming societal battle.  As gay marriage becomes more prevalent in spite of societal opposition, it will become increasingly more controversial to speak out against it.  Chai Feldblum, President Obama’s nominee to the EEOC, has already stated that she believes that sexuality liberty should trump the constitutionally protected freedoms of speech and religion.  Americans are already finding themselves being punished for opposing the homosexual agenda.

December 2010 will be a pivotal month in our nation’s history, and the past week will likely be the most important week of the month.  The impact of the decisions made this week, good and bad, will be felt for years to come.

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