Class Warriors Got What They Wished For (Congratulations: Wealth has Dried Up!)

American Thinker ^ | 12/09/2010 | Randall Hoven

[SeekAndFind]

A funny thing happened on the way to spreading the wealth: wealth dried up.

A good class warrior wishes for three things (at least).

• (1) For tax rates to be highest on the richest. Ideally, only the rich would pay taxes. The Father of Class War, Karl Marx, made "a heavy progressive or graduated income tax" one of the ten planks of his Manifesto.
• (2) For no one to be super-rich. Ideally, no one would make more than some amount considered too much. Barack Obama, the Son of Class War, once said, "I do think at a certain point you've made enough money."
• (3) For Government to have plenty of money so that it can spread the wealth and help the needy. The Democratic Party, the Holy Ghost of Class War, put in its 2008 platform, "For families making more than $250,000, we'll ask them to give back a portion of the Bush tax cuts to invest in health care and other key priorities."

Now think about that for a moment.  If the class warriors got their first two wishes, their third wish would be impossible.  If you tax only the rich, yet you have no rich, then government collects no revenue.  You can't spread wealth if there is no wealth.

And here is the punch line: that is exactly what is happening now, just not as starkly.

In 2007, those making over $200,000 per year did not pay all federal income taxes -- just 52% of them.  Then came the Great Recession.  Taxable income of that group declined 16% from 2007 to 2008.  Taxable incomes went up slightly for the middle class, or those households making between $40,000 and $200,000.

And what about the really rich: those with gross incomes over one million dollars?  There were 18% fewer tax returns from such households and 25% less taxable income.  As a result, the federal government collected $60 billion less from such households in 2008 than in 2007.  (See tables at the end of this article.)

The Great Recession was a great time for class warriors.  Incomes for the rich went down quite a bit in a single year (and only the first year of the Great Recession) while those for the middle class stayed about the same.

The result was predictable: much less revenue for the government.  Federal income taxes from the middle class ($40,000 to $200,000) went up by $2 billion, but those from the rich (over $200,000) went down by $73 billion.  This was not because of tax rate cuts; there weren't any.  It was because there were fewer rich households and less income for such households.

Real GDP fell only 2.8% from 2007 to 2008, but federal revenue fell almost twice as much: 5.2% in constant dollars.  Through 2009, federal revenues were down 21% from 2007, leaving a gaping shortfall in revenue of over half a trillion dollars (inflation adjusted) and an unprecedented federal deficit.  (Tax figures for 2009 are not yet available.  I suspect they will show the same pattern: loss of federal revenue due to loss of income at the higher levels.)

Revenues did not fall because of a tax rate cut; there was no tax rate cut between 2007 and 2009.  Revenues did not fall because of some give-away to the rich.  In fact, the problem was just the opposite.  Revenues fell because there were fewer rich and the rich made less money -- just as class warriors wanted.

We had a progressive tax structure that relied on the rich getting richer.  Then we got what we wished for: for the rich to become like us.  So now we're all broke.  We had a bubble-based tax system, and the bubble burst.

Why do you think revenues fell by over 20% to the federal government and states like California during the Great Recession, when GDP fell only 4%?  Because the federal government and states like California have extremely progressive tax structures.  You get rid of the rich, and you get rid of government revenues (and job creation).  Believe it or not, the rich lost more money in the Great Recession than the rest of us did.  Our golden goose is cooked.

Discussions of how much to tax the rich are ever more akin to fiddling while Rome is burning.  Before you can get money from the rich, you have to have rich households and they have to have money.  You can't tax what you've destroyed.

Be careful what you wish for.  Or vote for.

Randall Hoven can be contacted at randall.hoven@gmail.com or via his web site, randallhoven.com.

Some key data from the IRS are summarized in the tables below.  Source:  IRS, Table 3.5, for the years 2007 and 2008.  Data for tax year 2009 are not yet available through the IRS site.  (Dollar amounts in the table below are rounded.  Percentage changes were calculated on the unrounded values in the original IRS tables.)

Number of Tax Returns

AGI	2007	2008	Change
Under $200,000	105,995,320	103,618,393	-2.2%
$40K to $200K	55,350,570	55,414,032	+0.1%
Over $200,000	4,527,350	4,359,936	-3.7%
Over $1,000,000	391,432	319,432	-18.5%

Taxable Income ($billions)

AGI	2007	2008	Change
Under $200,000	$3,615	$3,592	-0.6%
$40K to $200K	$3,063	$3,067	+0.1%
Over $200,000	$2,449	$2,061	-15.8%
Over $1,000,000	$1,245	$938	-24.6%

Federal Personal Income Tax Generated ($billions)

AGI	2007	2008	Change
Under $200,000	$551	$550	-0.2%
$40K to $200K	$486	$488	+0.4%
Over $200,000	$604	$531	-12.0%
Over $1,000,000	$315	$255	-19.1%

[Gomer1066]

Like: “DUH!”

You’d think the Leftards would learn.

Of course they are LEFTARDS (Leftist & Retard = LEFTARD)

[pnh102]

We finally ran out of other peoples’ money. :)

[pabianice]

[wbill]

Interesting article, though I disagree with his reasoning on one premise.

I think that he's postulating that the "super-rich" (1 million and up) *lost* money. While that's likely true, I'd add that people in this bracket largely have the capability to choose where they'd like to live, whether or not to defer income, a whole host of better tax shelters, and so on.

I'd argue that, in part, incomes went down for this sector as much by choice as by economic impact.

[SeekAndFind]

"‘The problem with socialism is that eventually you run out of other people’s money’"

[SeekAndFind]

I'd add that people in this bracket largely have the capability to choose where they'd like to live, whether or not to defer income, a whole host of better tax shelters, and so on.

I have often mused -- What would happen here in the USA if we had a banking system the competed with the likes of Switzerland, the Caymans and Bermuda?

[The Great RJ]

Excellent points. Also note the effect of Hauser's Law which demonstrates that tax revenues are always about 19% of GDP regardless of the highest marginal tax rate. During the 1950s the highest marginal tax rate in the US exceeded 90%. President Kennedy reduced these highest rates with across the board tax cuts and sparked an economic boom. JFK wouldn't recognize his party today.

[Darnright]

Even though the author has confused the terms “wealth” and “income”, the wealth of the average American has most definitely taken a huge hit. Many people have lost their jobs and have been forced to use their savings to pay bills.

People are less able to pay off debt today, as proven by page after page of foreclosure notices in newspapers across the country. Their debt cancels out any savings or IRA’s those not in foreclosure might still have.

Investors, despite glowing reports from the media, have lost enormous percentages of their net worth, their “wealth”, in the Wall Street drops from the highs of 2006-2007.

[wbill]

I like the idea, but I'm not sure that it would change all that much. The "super-rich" (as we're discussing) already have access to those banking systems, and can afford to pay people who know how to make them work.

I dunno about you, but I don't have that kind of cash. I'd love to have access to that type of banking. However, denying Uncle Sam his cut of my paltry salary will hardly bankrupt the feds. Maybe the Fed would take a bigger hit from the corporate tax side?

[phockthis]

I want my Obama money...