Cutting benefits to those who don’t need them is a better way to trim deficits than hurting the economy with higher tax rates.
By Stephen Moore and Walter E. Williams
This column appeared in the Wall Street Journal December 9, 2011
On Tuesday, President Obama once again blamed the lack of progress on the budget deficit on Republicans’ refusal to raise taxes on their fat-cat friends and donors—the much-maligned 1%. Yet the top 1% of earners already pay close to 40% of all federal income taxes, a share that is almost double what it was in the 1970s.
Raising tax rates on high incomes, as Mr. Obama proposes, would only cut the deficit by about 6%, even assuming—wrongly—that those higher taxes wouldn’t slow the economy.
The much bigger fiscal drain from the wealthy is on the federal expenditure side of the budget ledger: tens of billions each year in grants, loans, subsidies, guarantees and benefits pocketed each year by wealthy Americans as individuals and firms. Any campaign to downsize big government will only succeed if the needed deep cuts in spending are deemed by voters as equitable. In an era of $1 trillion-plus deficits and a $15 trillion national debt, we would like to think that a national consensus could be reached to eliminate handouts to individuals and companies with net incomes above $1 million.
We’ve long argued that the GOP should lead the charge. Republicans should fight harder to eliminate taxpayer funds for the Export-Import Bank, which makes loans to major Fortune 500 companies like Boeing and General Electric, to solar- and wind-energy companies like Solyndra, and for Department of Commerce subsidy programs to manufacturers and high tech companies.
The left-leaning Environmental Working Group found that among the beneficiaries of various farm programs from 1995-2005 were David Rockefeller and Ted Turner, and companies that own farms such as John Hancock Life Insurance. Last month Sen. Tom Coburn (R., Okla.) put out a report, “Subsidies of the Rich and Famous,” that identified tens of billions of dollars of handouts to the wealthy. His report included farm payments under government programs to rock stars like Bruce Springsteen and former professional athletes like Scottie Pippen.
Rather than stand up against all this, Republicans recently allowed the Federal Housing Administration to guarantee home mortgages of up to $750,000. Not many in the bottom 99% can afford such homes.
Meanwhile, President Obama (and many interest groups on the left) continue to defend the tens of billions of dollars that Energy Secretary Steven Chu has doled out to “green companies” and their millionaire investors. Mr. Obama is a big fan of the International Monetary Fund, which bails out banks and financial institutions on a global scale. House Minority Leader Nancy Pelosi has torpedoed all Republican budget proposals to modestly means-test Social Security and Medicare. So billionaire seniors receive full benefits.
We propose a new law: Let’s call it The Millionaire Subsidy Elimination Act. It would prohibit anyone with an annual income over $1 million from receiving any government benefits. There’s a big advantage to cutting benefits to millionaires rather than raising their tax rates to 40% or 50%. Slashing expenditures would help grow the economy, while raising tax rates would hurt U.S. competitiveness and job creation.
Let us be clear on one point: We do not mean to demean the wealthy. The gratuitous bashing of rich people by the president and so many others in Washington is downright offensive. The United States is an affluent society because Americans reap rewards when they employ their talents, their innovative ideas, their entrepreneurial drive, and their sweat equity in ways that make products or provide services we all enjoy.
The Robber Barons today aren’t those who made fortunes by giving people what they want—whether they are Bill Gates, Michael Dell or LeBron James—but those legal bandits who make their fortunes by using political influence to plunder the Treasury.
Washington doesn’t create wealth. It reshuffles it. If our calculations—which include corporate welfare and other subsidies reported in a variety of studies including most recently Mr. Coburn’s—are correct, there is now more than $200 billion in annual income transfers every year to Americans whose whose incomes exceed $1 million. Washington’s myriad subsidy schemes betray the middle class and the poor in ways that sanctimonious politicians who talk incessantly about “fairness” seldom admit to.
We can’t think of a better way to disarm the class-warfare crowd in Washington than by calling for zeroing out all subsidies for the rich and famous. Are Republicans smart enough to embrace this idea? Probably not. Would Barack Obama and Nancy Pelosi oppose ending welfare to millionaires and billionaires? We’d love to see them try.
Mr. Moore is a member of the Journal’s editorial board. Mr. Williams is a professor of economics at George Mason University.
This column can be found on the Wall Street Journal website.