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Obama’s Trickle-Up Economics

Democrats promise to make their tax increases rain only on the rich. Can they?

by
Patrick Poole

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September 19, 2008 - 12:00 am
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He can hold back the waters and heal the planet. And now Barack Obama can apparently defy gravity, rewrite economics, and suspend the law of unintended consequences. That’s at least what I gather from the Obama campaign ad currently running in my home state of Ohio where he promises tax breaks for everyone except the “rich.”

So who exactly is going to pay for the $220 billion in new spending that Obama proposes if he is elected? Funny you should ask, because inevitably you will.

Contrary to their claims, these new programs proposed by Obama-Biden can’t possibly be funded by a tax solely on the rich. Taxes that only fall on the rich are as mythical as Bigfoot and Atlantis. They already know that their tax increases are going to have to dig pretty deep into the middle class, but they will float this phony campaign promise as long as enough people are willing to believe it and get them elected.

And how exactly will the Obama-Biden campaign’s “eat-the-rich” tax rhetoric play in the heartland when they hear about the $28,500 per plate fundraising dinner in Beverly Hills this week with the Hollywood elite (complete with the obligatory Barbara Streisand concert)? About as well as the middle class will take getting the bill for the Fannie Mac/Freddie Mac bailout. In fact, the rich seem to be doing their fair share of eating the rest of us.

Economists have long known that taxes targeted solely on the rich rarely strike their intended target for a variety of reasons. For one, when the rich begin to feel the tax bite they simply readjust their income to offset tax increases. They can do this by deferring income or decreasing the amount they work. Obviously, the rest of us don’t have these options.

For any increased taxes that the rich do end up paying, they pass those off to the middle class who are their employees (through pay cuts and layoffs) and customers (through price increases). Thus, tax increases on the rich actually result in stealth tax increases and layoffs that land squarely on the middle class and the poor. Do you have anyone to pass your tax increases off to? Didn’t think so. And when prices of everyday goods begin to increase, the result is inflation, meaning that the money you have today is worth less tomorrow. For high inflation and high unemployment, think Jimmy Carter.

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