Megan McArdle on Obama’s Economic Unicorn

John on May 1, 2009 at 8:50 am

That’s not how she put it. That’ s how I’m putting it:

[I]t’s not really feasible to pay for everything simply by doubling taxes on the wealthy — because federal income taxes aren’t the only taxes they pay. Higher incomes are disproportionately concentrated in places with high state and local taxes, like New York City. There’s a practical limit to how high a percentage of income you can take from even the wealthiest financier, not least because they have more discretion about how, and whether, they make money, which means that raising taxes above a certain level rapidly starts depressing the amount of income available to tax. Even most European countries don’t try to pay for their welfare states just by soaking the rich.

Up until now, Obama has largely done the fun part of governing: promising people free stuff. To be sure, even some of that is fairly unpopular, but the auto bailouts have undoubtedly pleased the UAW more than they have angered the rest of the population, and most of the bank spending has occurred under programs originated in the Bush administration. Now, however, the bill for Obama’s central proposals is about to come due. Unless Obama thinks he can borrow something like a trillion dollars a year indefinitely, he is going to have to ask Americans to make sacrifices to pay for the goodies.

We are on a completely unsustainable course. As Pelosi might say “the party is over”, we just don’t know it yet.

[HT: Patterico]

Category: Energy & Economy |