Column: “This isn’t politics, this is math.”
The new tax would take care of about four days of spending over the next ten years.
Apr. 27, 2012
The opinions expressed by The Maneater columnists do not represent the opinions of The Maneater editorial board.
Ideology aside, let’s talk taxation. President Obama recently presented “The Buffett Rule,” which he claims will equalize taxation and result in more revenue. So ignoring the fact this is a direct attack on wealthy Americans for a moment, let’s take a look at the numbers.
The Buffett Rule would set a minimum tax rate of 20 percent for households earning at least $1 million per year. The idea is that by raising taxes on the wealthiest of Americans, the government would be able to increase its revenue while taxing those who liberals believe “deserve it most” or something. Of course, an increase in revenue would shrink the deficit. Then we would presumably move closer to solvency and start paying off the debt. Unfortunately, this doesn’t work in the real world because Congress will continue spending more, but the thought was nice.
Now, let’s look at the numbers for what the tax would actually do. A few days after the Buffett Rule was presented, the Obama Administration was confronted with an inconvenient truth. It appeared the tax would only raise about $46.7 billion in revenue over ten years. To put that in perspective, the federal government spends almost $11 billion per day. This means the new tax would take care of about four days of spending over the next ten years. Of course, this ignores the likely increase in entitlement spending.
That wasn’t the end of it though. Oh, no. It turns out the Buffett Tax that Senate voted on last week actually would have made the deficit worse. That’s right, it would actually result in a loss of revenue. (Darn it. Now how will we get back at those evil rich people we gave our money to by choice?) In fact, the Joint Tax Committee calculates that the combination of AMT repeal for middle class and the Buffett Tax would add $793.3 billion to the debt over the next decade. Ah well, what’s the difference between $16 trillion and $17 trillion anyway? You’re right! It’s Obama’s tax plan! As the President said himself, “This isn’t politics, this is math.”
Now, let’s walk across the aisle and take a look at Gov. Romney’s tax plan. The Washington Post and several other media outlets say his tax plan falls far short of its goal and results in a widening budget gap due to tax cuts. Romney’s plan eliminates a number of tax exemptions, which will result in more revenue, (see, he’s going after the evil rich people, too). Some analysts are still skeptical that the math works out. Romney’s advisors are adamant that the tax cuts pay for themselves. So, who’s right?
In 2010, a European Central Bank study looked at where countries are on the Laffer Curve. (The Laffer Curve illustrates the relationship between government revenue raised by taxation and the possible rates of taxation.) The ECB found its U.S. model was far from the best place on the Laffer Curve. Its experiment demonstrated both a 32 percent labor tax cut and 51 percent capital tax cut were self-financing. According to The American, if you use the ECB’s figures, Romney would only need to find about $100 billion a year in spending cuts or reduced tax breaks to balance the budget with his tax cuts. This is certainly a workable number.
America needs to be honest, though. This isn’t 1980, and the highest tax rate isn’t even close to 100 percent. America won’t see an explosion in GDP as we did after the Reagan-era cuts. However, there is evidence the United States is ready for some energetic growth with even moderate tax cuts. It may be hard to grow our way out of this fiscal crisis; but if we don’t try, it’s very possible that we will shrink our way into bankruptcy.