In a speech Monday in Toledo, Ohio, Barack Obama fell back on the classic populist political formula and began promising his enthusiastic audience absolutely anything if they would vote him into office. His promises went well beyond the traditional chicken in every pot and car in every garage rhetoric of his predecessors. His philosophy seems to boil down to bailouts for everyone. Bailout upon bailout upon bailout, including subsidies, loan guarantees, direct government loans and public aid for every individual, family and small business in America from the bottom to the top, all at a cost which cannot possibly be counted at much less than a trillion dollars. He wants money for a million makework jobs, for even more loans for the failing auto industry, bailouts for small businesses, for state and for local governments.
What Obama did not go into detail on in this speech was where he was planning to find the money to responsibly pay off our already expensive bailout of homeowners and lenders much less follow it up with even more free money from the government. There are only a few ways for the government to get money on this scale. It can raise taxes, it can cut entitlements, it can borrow the money, or it can have the federal reserve just print more of it out of thin air. Clearly Obama hasn’t thought through the implications of his promises, and those who are considering voting for him have obviously not thought much about what his promises will mean for them in the long run.
Just printing more money is right out as a way of funding more public bailouts. That’s one of the big mistakes which got us where we are today. It devalues the currency, and every devaluation of the currency multiplies the negative impact of every other negative force in the economy. It creates inflation and takes spending value directly out of the profits of consumers. He can’t borrow more money, because international banks and foreign governments are having problems of their own and certainly can’t afford to carry more potentially worthless American paper. Cutting entitlements drastically might indeed be able to raise over a trillion dollars quickly, but I don’t see a democratic socialist like Obama completely eliminating Medicaid, Medicare and Social Security. If anything he’s likely to expand those programs. Just cutting the discretionary budget couldn’t provide anywhere near the money Obama’s proposals would require.
That leaves just one option, raising taxes — and by an enormous amount. To meet Obama’s promises the effective overall rate of taxation would need to be raised dramatically on taxpayers at every level of income. Currently individual income taxes account for about $1.4 trillion of the government’s revenue. Obama has promised that he will not raise taxes on the middle class (which he defines rather more restrictively than most would). Obama has claimed he’s only going to raise taxes on those earning $250,000 or more. But that’s only the top 1.5% of wage earners. You’d have to take all of their money to even come close to what he’ll need.
So that promise goes out the window. More realistically he could try to put his tax burden only on the top 5% of income earners. They earn $150,000 or more and currently produce about $800 billion in tax revenue. He would need to raise their gross tax rate to about 60%, assuming he made no changes in deductions or exemptions. For a family of four earning $175,000 with two working parents – typical of many taxpayers in that group – he would be increasing their real taxes by more than $50,000 a year in addition to the higher mortgages and other expenses they already carry. They would be destroyed.
Crushing the bourgeoisie along with the rich might appeal to Obama’s marxist soul, but even he would realize that a tax hike like that on people who actually vote would be unsupportable. He would singlehandedly resurrect the Republican Party to take over both houses of congress with ease by 2010. So he would have to lay some of that tax burden off on even those he defines as middle class, those earning between $50,000 and $150,000 a year. That includes about 54% of the population and close to 100% of those who actually pay any tax. To raise a trillion dollars from them would require a tax hike averaging about 20%. He could top load that, with a 40% increase for those over $250,000 income and a 20% increase for those over $150,000 income and a 10% increase for those over $50,000 income. Nice and graduated, equalizing incomes, bringing the poor up and the rich down. So what if it costs someone just struggling by on a gross income of $50,000 another $3,000 a year that they almost certainly can’t afford.
But wait, there’s more. Obama wants to provide universal healthcare. Right now, the cost of healthcare for the nation is $2.3 trillion per year. Let’s assume (with no good reason to do so) that under government control the cost could be kept down to about what premiums are for family members under a group policy, about $4400 per year. That’s still $1.3 trillion. So where is all of that money going to come from? Is the ghost of Karl Marx going to bring it in big red bags? No, it’s going to come from even more taxes. What the hell, another $4000 from those earning $50,000 to $150,000, twice that for the $150,000 to $250,000 folks and four times as much for those earning in the top 1.5%. What the hell, it’s just their kids’ college educations.
Now wait, you say. Obama only wants to tax the rich. But remember, the rich don’t have all of the money. And if you did try to get all of the money from people earning only $250,000 or more, you’d have to tax them so heavily that they would have almost no income left. To cover the combined cost of Obama’s promises and universal healthcare off of no one but those earning $250,000 or more you would need to tax those income earners at 90% or more of their income. A plane ticket and a decent house in Belize costs less than 90% of your income when you earn several hundred thousand a year.
If you’ve been following the implications of the math, one of the reasons why the burden of all these added expenses is so huge for everyone with an above-average income is that about 40% of the population pays no income taxes at all. In fact, under one of the plans Obama has proposed those earning below average incomes would receive an earned income credit where about $20 billion would be paid out to them to supplement their incomes and bring them up closer to the national average, so just add that to the trillions of dollars coming out of the pockets of those who earn more than $50,000 a year.
The problem is that there just isn’t enough personal income in the US to raise all the money Obama would need. Maybe he could go looking for more money from corporations. Yet our corporate tax rate is already one of the highest in the world at 35% and it has been driving businesses away from our shores. Raising the corporate tax would drive large multinationals out of the US altogether and would force smaller businesses to shut their doors. it would cost us even more jobs and drive us deep into depression. Obama has also promised to create jobs. Unless those jobs are working for the government – and there’s some reason to believe that’s exactly what he has in mind – he needs to bring companies back to the US, not drive them away. The only way to do that is to make the business environment here more attractive. That means lowering wages and reducing the corporate tax. What do you think the chances are of Obama being able to sell either of those ideas to his supporters?
The bottom line is that Obama cannot deliver on his promises without destroying the income producing class in this nation, a course which will ultimately destroy the entire economy. His promises so massively exceed the ability of the government and the people to pay for them that he ought to be ashamed and people ought to be chanting “liar, liar, liar” at his speeches. It’s traditional for politicians to promise voters more than they can really deliver, but rarely have the promises been as blatantly impossible to fulfill as those Obama has made.
People love Obama because all of his promises give them hope. It won’t take long after he’s elected for them to realize how false a hope based on impossible promises has to be. But then it will be too late.