"Nobody, Left Or Right, Really Thinks The Math Works, No Matter What They Say In Public"

We Are the 98 Percent

The only way to finance a big European-style state is to have it paid for by massive taxation of everyone, mostly the middle class. Right now, we are avoiding honest debate on this fact.

The central issue of our time is the debate over the size and scope of government. Two unpleasant but undeniable mathematical truths limit the feasible policy choices. The recent sound and fury of the fiscal cliff follies in the end signified nothing because the resolution was in fact just a denial of both truths.

The first truth is that the current tax rates cannot support the promises made to middle-class Americans. The most unaffordable items in fiscal projections are Social Security for everyone and government-sponsored health care for the middle class. You cannot preserve these even with Draconian slashing of military, infrastructure, welfare, education, and other expenditures.

The second truth is that you cannot pay for the Life of Julia, or any vision of a cradle-to-grave welfare state, without massive and increasingly regressive middle-class taxes. The poor don't have the money to pay for a European-style welfare state, and the rich, rich as they are, don't have anywhere near enough.

Not only that, it's easy to tax middle-class assets and transactions — things like payrolls, sales, and real estate — but soaking the rich means taxing investments. Investments are complicated and can be restructured to minimize taxes. Also, investments are the lifeblood of economic growth. Raising significantly more taxes from the rich also requires higher marginal tax rates — and their rates are already quite high. High marginal rates distort the economy and yield less revenue than anticipated because they increase the rewards for legal and illegal tax avoidance.

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