During the campaign, President Obama impressed everybody by singing an impromptu version of the old Al Green ballad Lets Stay Together. But now the White House has switched tunes. The presidents new favorite is Young At Heart, a Frank Sinatra hit of the 1950s. You could hear it playing in the background last week when he talked about the budget: Fairy tales can come true, it can happen to you . . .
Actually, its not really a new tune. For years, Obama has been telling everybody that there isnt any problem with the U.S. economy that cant be cured by taxing the rich. And thats his escape route from the fiscal cliff of budget cuts and tax increases schedule to hit us in January. The rich will just pay a little bit more and well not only get that deficit under control but even have enough left over for another $200 billion stimulus program like that one that worked so well in 2009.
The song is so sweet that millions of Americans have fallen under its sway. A recent Washington Post/ABC shows that fully 60 percent of the country agrees with Obama that new taxes on the rich defined in this poll as anybody with household income of $250,000 a year or more are the solution to the deficit.
The problem is that the fairy tale that most resembles Obamas story of the rich with bottomless pockets is Rumpelstiltskin, in which a drunken miller brags to the king that his daughter can spin gold out of straw. That story ends badly when it turns out the miller is lying. So will Obamas.
Even if the presidents estimate that his new tax will generate $1.2 trillion over the next decade is correct (and it wont be, because rich people are infinitely adept in figuring new ways to hide or shelter their income from the IRS), thats not within a country mile of the $7.1 trillion that needs to be trimmed out of the deficit.
Instead of listening to Obamas recitations of glass slippers and fairy godmothers, Americans ought to be reading Choices For Deficit Reduction, a report issued last month by the nonpartisan Congressional Budge Office. Because it came out just two days after the presidential election, when everybody was heartily sick of politics, the CBO report got comparatively little attention. But even in the cautious language of Washington bureaucrats its like a cold shower for the presidents budget fantasies.
The problems with the U.S. budget are fundamental and cannot be passed off with gimmicks or accounting legerdemain, the report says. Federal debt, if left unchecked, will hit 90 percent of GDP over the course of the next decade, it predicts, and the United States would quickly head into fiscal territory unfamiliar to it and most other developed countries.
Zeroing in on Social Security, Obamacare and entitlements as the heart of the problem, the report warns that they can be sustained only by raising taxes substantially, relative to current polities, for a broad segment of the population. How broad? Well, as broad as that fiscal cliff, and then some. If Congress and the president let all those Bush-era tax cuts expire next year not just those on the rich, but all of them, including those on the middle class it will raise only about three-quarters of the money needed for deficit reduction, the report says.
Thats because the idea of an untaxed American plutocracy the greedy villains in Obamas fairy tale has about as much factual basis as unicorns. As the report notes, in 2009 the poorest fifth of U.S. households paid about 1 percent of their income in federal taxes. The middle fifth paid about 11 percent. The top fifth households with an average income of $223,500 or above, roughly corresponding to Obamas definition of rich paid 23 percent. That means that people in those homes work already work more than a day each week just to pay the federal government. State and local taxes (including property tax) push that much closer to two days.
Rumpelstiltskin ends with the millers daughter making an unseemly deal with an ogre to help her turn the straw into gold. Obamas fairy tale, if it doesnt veer back to reality, will have a much sadder final chapter. Federal debt cannot grow indefinitely, the CBO report notes. . . . Rising debt could itself precipitate a fiscal crisis. Lenders jack up interest rates, credit is sucked away, and the U.S. economy shrivels like a wicked witch doused with a bucket of water. And nobody lives happily ever after.