Strengthening Constitutional Self-Government

No Left Turns

The $250,000 Maginot Line

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.

Discussions - 6 Comments

This is fantastic analysis -- the type of thing conservatives should be engaging more frequently. Thanks for the write-up.

Another neo-con snow job drawn from conveniently cherry-picking comments and statistics. So the amounts from the tax are something less than what Obama projected? One look at the market could have predicted that. But it is just one piece of an overall strategy for Obama. Where was all this expert analysis by conservatives when calculating the generations of budget deficits left to us by the Bush administration's off-budget wars? Iraq has now cost 60 times what Rumsfeld promised it would, and dismissed all warnings with 'goodness gracious!' That is an empire state building of debt compared to the nickel and dime stuff the democrats are proposing to repair it. It is called being responsible, and americans are going to have to get used to it. The era of conservative knee-jerk hatred of taxes is over.

Ren - I think you're missing his point. If Obama wants to maintain current programs and add $1 trillion in new programs; and given that we're already running a deficit -- his increase in taxes on those earning more than $250,000 is a drop in the bucket next to his promises. He literally needs to raise overall tax levels by more than 10%. I'm not sure pointing out the incoherence of his policies is "knee jerk" in any way.

From the above we might draw two opposite possibilities.

1. The constraints of a shrinking economy and the unreality of Obama's tax and spending program will cause Obama to govern as a moderate "Robert Rubin" Democrat.

2. The atmosphere of crisis along with large Democratic majorities will cause Obama to govern as even more of a radical than his current platform suggests. This very much includes higher tax increases than currently promised.

Of the two possibilities, I suspect that 2 is the more likely, but either way Obama's plan clearly does not add up.

Having said that, I can't get too self rightous. If it was a requirment that the spending and taxing elements of presidential platforms added up, Reagan would never have gotten elected President.

If it was a requirment that the spending and taxing elements of presidential platforms added up, Reagan would never have gotten elected President.

Has there ever been a presidential hopeful who could boast of this and really have it make sense (from, say, the twentieth century on - It probably happened more often the time when our country's economy wasn't so complex and massive)? Just curious.

one should add to this, as many have pointed out, that a good portion of the recipients of the cuts do not pay income tax or would get back more than they pay in. so what we are seeing in this proposal is an extension of the notion of pure income redistribution. we are already doing this, but this plan would vastly expand and "legitimize" this principle.

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