Why won't taxing the rich, who don't pay their "fair share" (whatever that means), work? Because they don't make enough money to solve our problems:
A dominant theme of President Obama's budget speech last Wednesday was that our fiscal problems would vanish if only the wealthiest Americans were asked "to pay a little more." Since he's asking, imagine that instead of proposing to raise the top income tax rate well north of 40%, the President decided to go all the way to 100%.
Let's stipulate that this is a thought experiment, because Democrats don't need any more ideas. But it's still a useful experiment because it exposes the fiscal futility of raising rates on the top 2%, or even the top 5% or 10%, of taxpayers to close the deficit. The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle class—because that's where the big money is...
We recognize that 2008 was a bad year for the economy and thus for tax receipts, as payments by the rich fell along with their income. So let's perform the same exercise in 2005, a boom year and among the best ever for federal revenue. (Ahem, 2005 comes after the Bush tax cuts that Mr. Obama holds responsible for all the world's problems.)
In 2005 the top 5% earned over $145,000. If you took all the income of people over $200,000, it would yield about $1.89 trillion, enough revenue to cover the 2012 bill for Medicare, Medicaid and Social Security—but not the same bill in 2016, as the costs of those entitlements are expected to grow rapidly. The rich, in short, aren't nearly rich enough to finance Mr. Obama's entitlement state ambitions—even before his health-care plan kicks in.
So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks.
Tax at 100% everyone who makes over $100,000--just confiscate their earnings--and we still can't balance the budget for one year. That's how much we're spending ourselves into debt. Additionally, if we confiscated all the wealth of all the billionaires in this country--not just their annual earnings, but all their wealth--that would not balance the budget for one single year. And then that wealth wouldn't be around to generate jobs (and tax revenue) next year.
Those who want someone else to pay higher taxes--well, ask not for whom the tax bell tolls, it tolls for thee. Go look at the referenced chart and see where that first big jump in money is (hint, it's at $50,000 in income).
There are only two ways out of this mess, and those are entitlement reform (that's where our biggest expenditures are) or just--I can't even bring myself to contemplate the Weimarian inflationary disaster that would arise from just printing money and our defaulting on our debts.
Socialism doesn't work--because it's a Ponzi scheme. It's too expensive. And we need to get off this ship now, while the waves are lapping over the Promenade Deck, and not wait until the Sun Deck is almost under water.