Let the government pay for it

There used to be a joke about a family arguing over whether to buy a car or a refrigerator. Since they couldn't afford both, they had to sacrifice one, whereupon the little boy pipes up and asks, "Why can't the government pay for it?" This seemed funny at the time, since everyone knew or was supposed to know that the government didn't have any money: it could only take some of yours, deduct twenty percent for overhead, and give it back in the form of services that you may or may not have wanted.

In the Obama household, however, the little boy was evidently a whole lot smarter, and when he piped up it was with a different mantra: "Why can't the rich pay for it?" Now that he is president, he has set out to do just that, by raising the top tax rate to 40 percent and raising the tax on capital gains and dividends to 24 percent--but only on the rich, you understand. (You are rich if you earn more than $200,000 a year, unadjusted for inflation. Recall that the infamous Alternative Minimum Tax was likewise supposed to affect only the rich: it had an exclusion of $40,000 a year. But $40K then is something like $200K today, and schoolteachers and plumbers wind up paying the AMT.)

In the Wall Street Journal today, Alan Reynolds goes through the math and concludes: "In short, the belief that higher tax rates on the rich could eventually raise significant sums over the next decade is a dangerous delusion, because it means the already horrific estimates of long-term deficits are seriously understated." Read it and weep. Blue skies! -- Dan Ford