What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes?  Economists Allan Meltzer and Scott Richard posed this question 27 years ago.  We may soon enough know the answer.

Barack Obama is offering voters strong incentives to support higher taxes and bigger government.  This could be the magic income-redistribution formula Democrats have long sought.

Sen. Obama is promising $500 and $1,000 gift-wrapped packets of money in the form of refundable tax credits.  These will shift the tax demographics to the tipping point where half of all voters will receive a cash windfall from Washington and an overwhelming majority will gain from tax hikes and more government spending.

In 2006, the latest year for which we have Census data, 220 million Americans were eligible to vote and 89 million — 40% — paid no income taxes.  According to the Tax Policy Center (a joint venture of the Brookings Institution and the Urban Institute), this will jump to 49% when Mr. Obama’s cash credits remove 18 million more voters from the tax rolls.  What’s more, there are an additional 24 million taxpayers (11% of the electorate) who will pay a minimal amount of income taxes — less than 5% of their income and less than $1,000 annually.

In all, three out of every five voters will pay little or nothing in income taxes under Mr. Obama’s plans and gain when taxes rise on the 40% that already pays 95% of income tax revenues.

The plunder that the Democrats plan to extract from the “very rich” — the 5% that earn more than $250,000 and who already pay 60% of the federal income tax bill — will never stretch to cover the expansive programs Mr. Obama promises. 

What next?  A core group of Obama enthusiasts — those educated professionals who applaud the “fairness” of their candidate’s tax plans — will soon see their $100,000 - $150,000 incomes targeted.  As entitlements expand and a self-interested majority votes, the higher tax brackets will kick in at lower levels down the ladder, all the way to households with a $75,000 income.

Calculating how far society’s top earners can be pushed before they stop (or cut back on) producing is difficult.  But the incentives are easy to see.  Voters who benefit from government programs will push for higher tax rates on higher earners — at least until those who power the economy and create jobs and wealth stop working, stop investing, or move out of the country.

~ From today’s column by Adam Lerrick in the Wall Street Journal 

Related posts:

1. How Much Are You Paying For Big Government?   According to the "Wall Street Journal," Washington is...
2. Satirist P.J. O’Rourke on Conservatives, Liberals, & Your TaxesConservatives should never say to voters, "We can lower your...
3. Economic Ignorance & Our Presidential CandidatesKarl Rove had some interesting remarks in last Thursday's WSJ about...
4. Tax Cuts RevistedAll too often when listening to a group of people...

Trackback URI | Comments RSS