Doubling Down on Class Warfare

Published July 26, 2011

In the course of negotiations over the debt limit, President Barack Obama’s rejection of his own bipartisan White House debt commission’s recommendations has become complete. But of greater concern is his decision to double down on class warfare instead of pursuing the policy paths that lead to growth that benefits all.

The consensus position of the president’s fiscal commission was support for tax reforms that would create a broader base of payers paired with lower rates. The recipe makes sense–a broader base corrects the problem of too few Americans having skin in the game, while lower rates encourage the economic and job growth the nation so desperately needs.

In 1997, less than 20 percent of U.S. households owed no taxes to the federal government–today, 47 percent have no tax liability. This is a problem, and unless it’s corrected, the nation’s future is a picture of continued conflict between those who receive entitlements and those who fund them–between workers and those who do not work.

The left has no interest in ending this deadly cycle. That’s readily evident when you examine the deficit plan from the Center for American Progress, George Soros’s think tank in name only (it spends its days working to support whatever the White House wants it to). It is based on incredible expectations for the amount of blood one can drain from a stone.

CAP’s plan assumes tax revenue of 23.8 percent of GDP, achieved almost entirely through a swathe of new and higher taxes on high earners and corporations. Serious economists and historians laugh at these growth, tax, and revenue expectations as simply unprecedented in American history. As one economist pointed out to me, CAP is basing its solution for America’s fiscal future on the assumption that something will happen that has never happened before.

When something that farfetched is proposed, it usually indicates ideological social engineering, not analysis about what the nation truly needs. Republicans should know–they made the same mistake in the previous decade, and they are the most to blame for the current shortage of taxpayers.

One of the largest reasons for the growth in the percentage of Americans who pay no taxes is the increase in the child tax credit under George W. Bush. The initial $400 credit, created in 1998 under Speaker Newt Gingrich, was meant to be a small measure to lighten the tax load on working families. The credit accelerated dramatically in the next decade, with Bush more than doubling it at the prodding of social conservatives–a perfect example of social engineering.

The upshot? The number of taxpaying households has decreased steadily. The nonpartisan Tax Foundation reports in 2000–2004 alone the expanded child credit increased total nonpayers by 10.5 million, a 32 percent jump. The credit is the primary reason for the problem of too few people paying into the system.

Both parties use the tax code to remold society to their preference. Where Republicans erred in unintentionally increasing the number of nonpayers, Democrats are now making the same mistake on an ideologically opposite and much grander scale.

The left knows increasing taxes on job creators suppresses hiring and economic growth. Even President Obama admitted that back in 2009 in explaining why he would not propose new taxes during a recession.

Now the president has gone back on his word. There are no practical reasons to do so. Thus his decision must be based on an ideological conviction that class warfare and permanently larger government are good for the nation. The dismal economic numbers month after month are the direct result of this conviction, and Obama’s current gambit will make things even worse.

Benjamin Domenech ([email protected]) is a research fellow at The Heartland Institute and editor, a Web site focused on innovative entitlement policy solutions.