George Packer’s New Yorker article on the working-class voters of Ohio contains an illuminating exchange – more illuminating than the author intended. He spoke with Barbie Snodgrass, a single mother who works two jobs in Columbus as a receptionist and cleaning lady. She is barely keeping her head above water on a little more than $40,000 a year. Packer notes that Barack Obama’s acceptance speech in Denver had policy details on the economy and health care, “which seemed tailored to attract a voter like Snodgrass, but they filled her with suspicion.”
Why? Snodgrass did not believe Obama’s promise to rescind the Bush tax cuts for high-income households: “How many people do you know who make two hundred and fifty thousand dollars? What is that, five per cent of the United States? That’s a joke! If he starts at a hundred thousand, I might listen. Two hundred fifty—that’s to me like people who hit the lottery.”
We don’t know what Packer said to Snodgrass during the interview, but he tries to correct her editorially: “In fact, only two per cent of Americans make more than a quarter of a million dollars a year, but that group earns twelve per cent of the national income. Nonetheless, the circumstances of Snodgrass’s life made it impossible for her to imagine that there could possibly be enough taxable money in Obama’s upper-income category—which meant that he was being dishonest, and that she would eventually be the one to pay.”
Although Packer is evidently conversant with the Census Bureau statistics and Snodgrass sounds too busy to look them up, it turns out that her fears are more realistic than his reassurances. The data Packer was referring to comes from the Census Bureau’s table showing “Income Distribution to $250,000 or More for Households” in 2007. A little calculator work bears out two of his points. First, the 2,245,000 households with incomes at or above $250,000 constitute 1.92% of the 116,783,000 households in America last year. Second, the $938.55 billion those households received last year amounts to 11.89% of the $7.895 trillion that all American households received.
Neither fact, however, renders the Obama tax and spending plans realistic. The $938.55 billion received by the households making more than $250,000 can be broken down into two parts: They get $561.25 billion to get from zero dollars per year to $250,000 per household; and then they get $377.30 billion in excess of $250,000 per household. The petty cash drawer Obama and Packer want to reach into to pay for new and bigger social policies doesn’t have $939 billion, but only $377 billion. That’s not 11.89% of all household income; it’s 4.78%.
$377 billion also represents 13.8% of total federal outlays in Fiscal Year 2007. Even if an Obama administration could capture every one of those 377 billion dollars for the U.S. Treasury, the effect would be to modestly augment what the federal government is already doing, rather than dramatically expand its role and presence in American life, as FDR and LBJ did.
But, of course, Obama can’t and won’t tax all, or most of those $377 billion. In the first place, much of this $377 billion is already taxed by the federal and state governments, meaning that the portion of that money left to be captured by new federal taxes is considerably less than $377 billion. In the second place, a 100% tax bracket on income over $250,000 will yield zero revenue – this is the one postulate of supply-side economics that no one disputes. Third, Obama is proposing what his top economic advisors describe as merely “partial rollbacks” of the Bush tax cuts for families making more than $250,000. The top tax bracket, for example, would return to 39.6%, not the 70% that greeted Ronald Reagan in 1981, or the 90% bracket JFK encountered in 1961. The revenue stream to the Treasury from such tax increases will be a small fraction of $377 billion per year. Fourth, the Obama campaign proposes tax cuts for people making less than $250,000 per year that will cost the Treasury less than the tax increases on the rich folks will bring in, “making the proposal as a whole a net tax cut,” according to his advisors. A net tax cut is a difficult basis on which to enact a net spending increase.
Candidate Obama promises to close loopholes and tax havens, and to “go through the federal budget, line by line, eliminating programs that no longer work and making the ones we do need work better and cost less.” This reformulation of Ronald Reagan’s promise in 1980 to scour the budget for “waste, fraud and abuse” is certain to be as futile. The federal government does its share of stupid things, of course, and its share of things stupidly. But every one of those things has a tenacious constituency defending its favorite program, a constituency that rightly believes presidents come and go but interest-groups fight forever . . . and prevail.
An Obama victory in November appears likely. It appears even more likely that an Obama presidency has already been pre-trivialized by the nominee’s contradictory campaign promises. He should have turned to Barbie Snodgrass for advice.