Monday, April 18, 2011

Follow the Money

Despite his expressed desire to raise taxes on "millionaires and billionaires" it's not likely that President Obama is as concerned about taxing the rich as he is about taxing the middle class. He won't say this, of course, because he promised during his campaign never to raise taxes on those making less than $250,000, but taxing the middle class is the necessary consequence of his refusal to cut spending. If we're going to pay our bills we have to get the money from the people who have it, and that's the middle class, as this graph from an article at the Wall Street Journal shows.
The Journal editorial explains why taxing the rich will not produce the revenue needed to close the deficit. Here's the core of their argument:
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.

Consider the Internal Revenue Service's income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the "millionaires and billionaires" Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.

Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That's five times Mr. Obama's 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.

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 above 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.

Mr. Obama is turning as he did last week to limiting tax deductions and other "loopholes," such as for mortgage interest payments. We support doing away with these distortions too, and so does Mr. Ryan, but in return for lower tax rates. Mr. Obama just wants the extra money, which he says will reduce the deficit but in practice will merely enable more spending.

Mr. Ryan isn't proposing controversial entitlement reforms because he likes pointless political risk, or because he likes being berated to his face from a front row seat, as he was on Wednesday. Medicare and Medicaid spending are consistently growing two to three times faster than the rest of the economy, while Medicare's cash-in-cash-out financing model means that seniors collect far more in benefits than they paid in taxes over their working lifetime. The entitlement state was designed for another era.

Mr. Obama's speech was disgraceful for its demagoguery but also because it contained nothing remotely commensurate to the scale of the problem. If the President had come out for a large tax on the middle class, like a VAT, then at least the country could have debated the choice of paying for the government we have or modernizing it a la Mr. Ryan so it is affordable.

Instead the President will continue targeting the middle class for tax increases to pay for an entitlement state on autopilot, while claiming he only wants to tax the rich.
And another campaign promise will be flushed down the memory hole.

Waiting for Superman

Last month when Wisconsin Governor Scott Walker was being raked over the coals because his budget reform plan would weaken public employees unions, including teachers' unions, Democrats in the state legislature and in the media were firmly on the side of the unions. They couldn't say enough good things about the job that teachers' unions were doing for the children of Wisconsin and how reprehensible Walker was for wanting to limit their ability to extort the Wisconsin taxpayers.

It was jarring, then, to say the least, when over the weekend I watched Waiting for Superman, a documentary on how awful our public schools are, particularly our urban schools. As I recall, WFS was highly acclaimed on all sides when it was released last year, but everything that the film showed to be wrong with our schools and everything that it recommended as a means to fix them is opposed tooth and nail by liberals in Congress and the media.

According to WFS, a film which every prospective teacher and parent really should watch, our schools went from the best in the world fifty or sixty years ago to among the worst in the developed world today. Why?

There are a number of reasons, of course, more, in fact, than what WFS talked about, but the chief reasons the film brought out are certainly at the top of the list. Schools today are failing our kids not because we're not spending enough money on them but primarily because teachers' unions, and the Democrat politicians they have bought and paid for, have made reform almost impossible.

They've made it incredibly difficult, for example, to remove an underperforming teacher from the classroom, and they oppose the one hope that many poor kids have of escaping the abysmal schools they're forced to attend - school choice. Private and charter schools are succeeding, according to the film, because they can fire poor teachers, extend the length of both the school day and the school year, and demand more from their students in terms of discipline and study. None of this is ever likely to happen in the regular public school. The film didn't mention it, but another thing private schools can do is remove discipline problems from the school environment, a measure which is necessary to creating a positive learning environment, but one which regular public schools either can't take or won't take.

A remarkable irony of the film is that some of the people arguing for reform, Jonathan Alter of Newsweek and Bill Gates of Microsoft, support a party and a president adamantly opposed to any meaningful reform. Together they refuse to provide these kids with the means to escape bad schools, refuse to act to allow districts to get rid of poor teachers, and who believe the solution to failing schools is to simply throw yet more money and more bureaucrats at the problems.

At the end of the film we get to sit in on several lotteries taking place around the country in which children are selected to attend charter and private schools. Often there are hundreds of applicants for just a few dozen openings. The looks of desperation on the faces of both the kids and their parents is heart-breaking. Watching them get passed over is like watching them being given a death sentence, which, in a sense, it is.

President Obama, however, is unmoved by their plight, captive as he is to the teachers' unions. Early in his administration he canceled a scholarship program which gave District of Columbia kids the wherewithal to attend private schools like the one to which the Obamas send their own daughters (the Republicans are going to try to restore this program now that they're in the majority in the House), and later his Elementary and Secondary Education Act eliminated school choice options that were in President Bush's No Child Left Behind Act.

It became very clear, as I watched Waiting For Superman, that the biggest impediment to meaningful school reform, the biggest obstacle to giving these poor kids a chance at a decent life, is the alliance between the President, congressional Democrats, and the leadership of the teachers' unions.

In fact, if the film weren't an hour and forty minutes long it'd be a great campaign commercial for the Republicans in 2012. Watch it and ask yourself whether you think the people who make it so hard for these children to get a decent education really are the champions of the poor or whether they're just the champions of the status quo.