Obama and the Tax Tipping Point

What happens when half the population does not pay anything at all in federal income tax? If Barack Obama holds on to his current lead and wins the presidency on Election Day, we will soon find out.

The Wall Street Journal online had a great post October 22. Here are excerpts from the article. The full story can be found here.

"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."

"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 $1000 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...220 million Americans were eligible to vote and 89 million - 40% - paid no income taxes. According to the Tax Policy Center...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."

Since the tax plan for the top 5% will not pay for all of the new spending Obama has pledged, the Journal argues that lower tax brackets will have to be targeted for tax increases. "As entitlements expand and a self-interested majority votes," the Journal says, "the higher tax brackets will kick in at lower levels down the ladder, all the way to households with a $75,000 income."

"The sequence is always the same," the Journal says. "High-tax, big-spending policies fore the economy to lose momentum. Then growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. The central bank tries to solve the problem by printing money. International competitiveness is lost and the currency depreciates. The system stagnates. And then a frightened electorate returns conservatives to power."

There are a lot of us in the electorate who see this coming. In a sick sort of way, I almost wish Obama would win. Then, with a Democrat-controlled Congress, he could implement the reckless policies he has campaigned on. And the country could then see why a select few citizens cannot foot the bill for the rest of the populace. It is tempting to pull for Obama so that America could learn a hard lesson. But in the end I cannot. The price for the nation is just too high.