Monday, April 18, 2011

The NYT Lets the Cat Out of the Bag: Reduce the Deficit By Raising Taxes on the Middle-Class Without Doing Anything

Picture the five year-old who blurts out at a family gathering: “Grandpa has bad breath.” Grandpa may indeed have bad breath, but this is not something said in polite company.

A veteran NYT journalist has committed the indiscretion of the five year old. (See Ross Douthat, “The Middle Class Tax Trap”, April 18). He sweeps away the smoke and mirrors for a fleeting moment. We learn that Obama has an alternative to his strategy of “soak the rich and then just keep going deeper into the red.” The CBO’s “current law baseline” reveals that, if the Bush tax rates are not renewed in 2012, inflation and the alternative minimum tax will raise middle-class marginal tax rates from 29 to 38 percent (Welcome to the “tax rates for the rich”), and federal tax revenues will rise from 18 to 23 percent of GDP.

Just by doing nothing in 2012, the Obama administration can set the country on course to “afford” a European style welfare state. As more and more of our vast middle class are pushed into higher tax brackets, federal, state, and local revenues rise to some forty percent of GDP. Add a harmless two to three percent deficit on top of that, and we have reached the low to mid forty percents in terms of government spending. We can miraculously pay for our entitlements without breaking a sweat. And we have done this without a value added tax, no less.

The CBO warns that their “current law baseline” could “tend to discourage some economic activity” and could “harm the economy through the impact on peoples’ decisions on how much to work and save.” We do not really know how our middle class would react to European levels of taxation. Some of us hope we’ll never test this proposition.

President Obama warned that the Republican budget proposals would lead to “a fundamentally different America.” But in a burst of candor, the NYT writer admits that the “current law baseline” scenario would lead to a “more stagnant and balkanized society in which our promise to the elderly crowds out the fundamental promise of America itself.”

Remarkable words from our newspaper of record.

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