4 MIN READ - Ooops... from the Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff.
We shouldn’t be surprised that given his mental state Joe Biden isn’t going to be good at arithmetic. But his math deficiency betrayed him last week when he effectively proved soaking the rich won’t solve the government’s fiscal problems.
First, Biden falsely claimed the richest Americans only pay an effective federal income tax rate of 8.5%.
”Look, folks, you know how many billionaires we have in America today? One thousand. You know what their average rate - tax rate - federal tax rate is? Federal tax rate is 8.5 percent.”
Even the Washington Post admits Biden’s tax rate is way off, the real effective income tax rate paid being more than 20% and including all other federal taxes over 30% (article link at bottom of post).
But let’s use Biden’s lowball number as it provides him the strongest case possible which itself will still be a giant fail.
Biden said a minimum 25% income tax rate on the rich will do wonders for fixing the federal budget deficit.
”Think about this. There’d be $40 billion raised [per year] if they even pay 25 percent.” (January 18th)
And being even more generous and broadening higher tax rates beyond just “billionaires,” the Washington Post reports that “The line is a key part of his argument to impose a minimum 25 percent tax on all taxpayers with wealth greater than $100 million. That would raise about $360 billion over 10 years, the administration estimates.”
Perhaps some readers can already see how the math sinks Biden, but let's do it anyway.
If raising the federal income tax rate on everyone worth more than $100 million from the alleged 8.5% to 25%, or an extra 16.5 percentage points, would really generate $40 billion a year ($36 billion according to the Post but we’ll be generous to Biden and say $40 billion), then if you up the rate to 100%, effectively taxing 100 cents of every dollar made by the rich, the annual revenue raised would be $221.8 billion.
(100-8.5)/16.5 x 40B = $221.8 billion.
The federal government ran a deficit last year of $1.7 trillion so the revenue generated in this fantasy scenario wouldn’t even raise 14% of what’s needed to balance the budget.
Also, does anyone remember the countless times we’ve heard Democrats like Bernie Sanders, AOC, Elizabeth Warren, etc… say if billionaires “pay their fair share” of income taxes not only would there not be a budget deficit, but the federal government’s revenue windfall would be enough to pay for the Green New Deal, free college education, government run healthcare, universal basic income, reparations, and every other unicorn program under the sun?
Well Joe Biden’s math, already bad as it is which we’ll continue picking apart in a moment, proves you could tax every billionaire's income at 100% plus everyone with $100 million at 100% and it wouldn’t even close one-seventh of the deficit.
Incidentally $221.8 billion is only 3.2% of the projected $6.9 trillion the federal government alone will spend in 2024.
It’s also 2.1% of the projected $10.49 trillion all government at the federal, state, and local levels will spend this year, not that there will be anything left for the latter two once the IRS seizes 100% of all rich people’s income first like the first vulture finding a carcass.
IT GETS WORSE
Also, Biden assumes the very wealthy are only paying 8.5% tax rates to begin with which the Post has called out as untrue. Given that Biden’s target class is really paying 30%+ in total federal taxes (plus state taxes), the room to raise rates is narrower. By the Correspondent’s estimates a 100% tax rate wouldn’t generate $221.8 billion a year in extra revenue, but only $158 billion.
And this all assumes if the government taxes the very wealthy at a 100% rate they won’t change their behavior: like quit working, or move their money overseas, or pack their bags and move themselves overseas too.
We’re also told it’s “only the billionaires” that need to be taxed more heavily. Well anyone worth over $1 billion is a small subset of the larger group worth more than $100 million, so the AOC and Bernie Sanders claims that billionaires can fund everything falls even more flat.
And so much also for the old myth that “Trump’s tax cuts for billionaires blew up the deficit.” Even if he lowered their tax rate from 100% to 8.5% it wouldn’t have made much difference. But as it stands, Trump only tweaked the top income tax rate—from 39.6% to 37%—which, by Biden’s own math, means the federal government at most lost out on $5.7 billion from the $100 million-plus crowd—less from “just the billionaires”—or a meager 0.3% of the deficit.
And Trump left capital gains tax rates virtually unchanged.
Obviously there’s not enough money with the very wealthy to make a dent in the deficit let alone the federal budget PLUS the Christmas list of new programs progressives want to launch.
So their only remaining options are to go down the food chain and jack up taxes on the “just kinda wealthy” and middle class, start taxing not just income but assets too (most of which are not even liquid like real estate, securities, or entire businesses), or some combination of both.
And since illiquid wealth must be sold to generate the cash needed to pay all these new taxes, everyone running for the exits at the same time would generate selling pressure that pushes asset prices down further resulting in another shortfall of projected revenue, not that this orgy of taxation at current asset prices would be anything close to finance the progressive's vision of government anyway.
But meantime we have Joe Biden to thank for proving all this, even though that wasn’t his intent.
The good news for him is most of his followers can’t do math either, so he doesn’t have much to worry about with his voter base.
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