Our NSF Government

On the outside, underneath the wall

All the money couldn’t buy

You’re mistaken, no one’s standing there

For the record, no one tried

Oh, I try to

What if we give it away?

—R.E.M., What if We Give It Away?

I know I’ve hit this before, but because I have yet to hear anyone, particularly among the GOP Presidential candidates, articulate and explain the point very clearly, I’ll keep banging away. 

Thomas Jefferson famously warned us:

A government big enough to give you everything you want is big enough to take everything you have.

Well, let’s just put that into practice for a second.

As a starting point, let’s recognize that the U.S. federal government currently spends at about a $3.6 trillion dollar annual clip.  That’s $3,600,000,000,000 spent per year.  Now, with all the haggling over the supercommittee and resolving the growing debt and annual spending deficit, there’s been considerable debate over whether, and to what extent, we should reduce spending vs. increasing revenues.  But what no one seems to be able to say out loud in this discussion is that the problem cannot be that we don’t raise enough revenue, because as a matter of basic mathematics there simply isn’t enough revenue to be raised, even if you allow the government to take it all.

Raise taxes on the rich!  We are the 99%!

OK.  Let’s say we do that, in the interest of making sure the rich pay their fair share.  Consider the following.  As I’ve pointed out previously, if you took those making $1 million and above—that’s the top 0.17% of tax returns, for you “occupiers”—and taxed them at 100%, according to the IRS you’d generate about $735 billion.  And just so we don’t get into any unnecessary debates over deductions and credits and loopholes, that’s based on 2009 total income figures.  In other words, I’m not talking about adjusted gross income (as I have in prior posts), and I’m not talking about taxing income above $1 million; I’m talking about taking every dime they made.  No credits.  No deductions.  Do that, take it all, and you’d fund a grand total of 20% of total federal spending.

Ah, but, Rusty, you know perfectly well that you don’t need $1 million to be rich!  You’re not making enough of the wealthy pay their fair share.

Quite right.  Let’s expand our experiment to everyone making $500,000 and above.  That more than doubles our base to the top roughly 0.5% of total tax returns.  Tax that total income at 100%—again, take very last nickel.  You’d generate less than $1.1 trillion, or less than 30% of total federal spending.  You’ll have to do better than that if you want to correct the deficit problem by increasing revenues.  We could drop down to everyone making $200,000 or more—that’s about 2.8% of total returns, so we’re now dipping into the upper income levels of the 99%.  The federal government could take every penny made by everyone making $200,000 or more, and still that would generate less than $2 trillion, or a little better than half of what it spends.  Taxing the rich ain’t gonna get you there, because they don’t make enough money, even if you take it all.

But, but, how can that be if we’re just making them pay their fair share?

How indeed.

Taking everything from the wealthy doesn’t get it done.  So we have to start dipping into the sacred “middle class.”  Clearly we can’t tax the middle class at 100%.  That would be unfair and just silly, right?  But what if we took, say, half of what they earn?  We could raise taxes to 50% on all income for those making between $50,000 and $200,000, and keep the tax at 100% for the “wealthy” as discussed above.  That would net you about $3.9 trillion, enough to cover current federal spending—but just barely, and just for now.  But this, of course, is a moot exercise, because nobody’s going to let you tax a unionized teacher or government clerk making $50,000 a year at 50%.  And taxing at those rates immediately adds about a third of the population to those already below the poverty level—over 4 million filers would go directly to ZERO income net of taxes, and even millionaires need something to live on.  Even for someone like Paul Krugman this is obviously not a practical solution to anything.

But what if we just dictated a livable wage and taxed everything above that?  For example, let’s say we decide in our infinite wisdom that the current median income of about $50,000 is really all anyone needs for a decent standard of living, and the rest they earn above that should be committed to the common good.  So, every dollar earned above $50,000 is taxed at 100%.  You could do that, and you’d generate about $3.6 trillion, or just enough to cover current spending. 

Of course, for 50 large a year you may be able to hire a barista at your local Starbucks, but good luck getting Jay-Z to cut a record.

Or Michael Moore to make a movie. 

Or a doctor to treat you (even if you have federally-funded health insurance).

Signing an NBA point guard?  Fuggheddaboudit. 

Most of us in professions where incomes tend to exceed the $50,000 threshold by any significant margin would quit altogether, or would work part of the year until we earned our $49,999, then take vacation for the rest (for those needing a more detailed explanation, read Atlas Shrugged), thus eliminating most if not all of the wealthy tax base altogether.  In other words, there would cease to be any high wage earners to tax, because there would no longer be anything to be gained by working more to earn more.  Real revenue under this system would end up being substantially less than I describe here, and certainly wouldn’t come anywhere near covering existing spending levels. 

That’s crazy talk.  You don’t need to tax the middle class, and you’re leaving out corporations.  Tax the millionaires and the evil corporations!  People before profits!

OK.  The most current IRS data for corporations is 2008, so it’s a bit of an apples to oranges comparison.  But for 2008, corporations had net income of not quite $1.9 trillion.  You could tax that at 100%, and add that to taxing all the million-dollar earners at 100% as discussed above.  You could take every red cent made by the corporations and millionaires, and it would only generate about $2.7 trillion, still leaving you nearly a trillion dollars short of covering everything the federal government spends.  Never mind what would happen to business development in the U.S. if the corporate tax rate went to 100%.  No, adding corporations to the mix doesn’t get you where you need to be, either.

Slice it however you want.  You can talk about raising taxes to close the deficit until the cows come home.  The basic point remains, and it’s not complicated:  At any practical level there simply isn’t enough revenue in this country to cover federal spending at its current levels, even if you taxed it all.  Like Monopoly, there’s only so much money in the box, and the District is waaaaaayyyy over the limit.

Apparently a government can be big enough to give you everything you want.  But it can’t pay for it all, even if it takes everything you and everybody else has.