Increasing taxes on the richest among us might seem like good way to reduce the national debt and pay for all this government spending. After all, most of us aren’t even close to being considered rich so what do we care? But is taxing the rich a practical way to bail out a government that’s drowning in debt? It turns out that Warren Buffett along with the other 99 members of the top 100 club could barely put a dent in the national debt even if they each donated their entire net worth to the cause.
How Much Money do the Top 100 Have?
According to the Forbes Magazine list of the richest people in America, the total estimated net worth of the 100 richest individuals in the country is approximately $953 billion. Net worths were calculated in September, 2011. If every member of this list decided to liquidate all their assets and transfer the value of those assets to the treasury, it would only pay off approximately 6.1% of the national debt, which stands at approximately $15.6 trillion according to the US Treasury. In fact, the total value of all of those billionaires’ net worth would just barely cover three months worth of federal government spending which amounts to approximately $298 billion per year according to the US Debt Clock.
What About the Top 400?
Even if you extend the list to include the top 400 richest people in America from the Forbes list, you would still only have enough money to pay off a little less than 10% of the national debt. Just to be clear, the amount of money we’re discussing here is not just the annual income of the top 100 or 400, it’s the total value of all their assets including houses, cars, stocks and other investments etc. Obviously, if all of these people donated their entire net worth to the government or if it were somehow confiscated, millions of jobs would be lost and in subsequent years, a significant chunk of the annual tax revenues that the government collects would be missing. The top 1% of taxpayers already pay 36.73% of the federal income taxes according to the National Tax Payer’s Union’s 2009 tax data.
President Obama’s Strategy, the Buffett Rule
The White House has been aggressively selling a set of tax increases dubbed the “Buffett Rule”. A White House website dedicated to the Buffett Rule states, “The Buffett Rule is a simple principle that everyone should pay their fair share in taxes. No household making more than a $1 million should pay a smaller share of their income in taxes than middle-class families pay.” As explained by OMB Watch, the Buffett Rule achieves these goals by increasing the capital gains tax from 15% to 30% on people with incomes of $2 million or more.
The non partisan Congressional Budget Office, according to an article on The Street.com, estimates the increased revenues from the implementation of the Buffett Rule would amount to $32 billion over ten years or $3.2 billion annually. The reality is that while this sounds like a lot of money, it is actually an infinitesimal amount in relation to the national debt and the level of spending that congress seems intent on maintaining. The federal government’s daily spending is approximately $9.9 billion extrapolated from US Debt Clock data, so the additional $3.2 billion in annual revenue increases resulting from the Buffett Rule would not even pay for one day of government spending at current levels.
Can the Average American Even Comprehend these Numbers?
In 2009, Time Magazine published an article by Barbara Kiviat that described the difficulty in understanding the concept of a trillion-dollar deficit. At the time, the national deficit was about to exceed $1 trillion for the first time; the deficit has since ballooned to over $1.3 trillion as measured by the US Debt Clock. In her article, Ms. Kiviat quoted Colin Camerer, a professor of behavioral economics at the California Insititute of Technology, “There is a sense that when numbers are too big or too small, the brain just shuts off.” Essentially, he is saying that human beings can’t truly comprehend extremely large numbers like a trillion dollar deficit or a 16 trillion dollar national debt. Because of this fact, it’s possible to make political maneuvers seem like legitimate solutions to real problems.
The Republican and Democratic Strategies
Just about everyone on both sides of the aisle agree that the country is in a financial mess, but the proposed solutions are polar opposites. Reporting for Bloomberg on the Republican budget plan which included $5 million in proposed spending cuts, Brian Faler quoted Congressman Paul Ryan, “We are offering the nation a choice. We think America is on the wrong track. We believe the President is bringing us towards a debt crisis and a welfare state in decline.” In the same article, Faler quoted Chris Van Hollen, a Democrat on the House Budget panel as saying, “Apparently the problem is not big enough to ask folks at the very high end of the income scale to contribute one penny towards deficit reduction.”
Since tax increases on lower and middle-income Americans are extremely unpopular, particularly in this economic climate, the President and his democratic colleagues have chosen to target the wealthy. White House Staffer Megan Slack writing for the White House blog said, “President Obama has proposed the Buffett Rule to make sure that everyone does their fair share and plays by the same rules…” While the concept of taxing the rich is much more palatable to the general public, it comes with a number of problems. The main problem appears to be that those rich people simply don’t have enough money, even if you took it all, to fix the fiscal disaster in Washington DC.