Too much Redistribution?

President Obama's budget proposal will raise effective taxes on those making more than $250,000 a year, to raise around 1 trillion over ten years.  That's 100 billion a year.  About 2% of American taxpayers are in this category.  Assuming for round numbers that 100 million tax returns are files (I think the real number is more like 60 million), that's 2 million filers.  By my math, the average tax increase will be $50,000!  Of course, the median will be lower, but I'm still seeing numbers in the $10,000 range for that.   (Sorry, I need to find that link again)  For the very top 1%, the tax increase will average $100,000.

And that's just the feds.  Already cash strapped state governments are planning to follow suit.  Oregon may hike taxes on those earning more than $250,000 by 2%, which is another $5000.  Plus reduce medical deductions for higher-incomes.

Roughly half of this money will be returned directly to lower income Americans as a median tax break of $800.  They will also benefit from a slew of new social programs, such as in health care and education.

As a slightly rightward-leaning centrist, I wonder if this proposal is too much redistribution.  I can accept increased taxes on the wealthy.  And accept some increased funding (and hopefully improvements!) in social programs that benefit all, though they tilt to the non-rich.  But, in a time of fiscal problems, to spend a substantial amount to lower taxes on the poor and middle-class may be a step too far.  If paying taxes is "patriotic", especially with current budget deficits, why do only a few percent of Americans get to be patriots?

In my opinion, if you want to reduce income disparity, especially extreme high CEO pay, do something with the corporate tax codes to discourage this.  

On the positive side, Obama proposes to reform Medicare for cost efficiencies.  A great idea, echoing some of the "sabremetrics" ideas of Billy Beane et. al.

Hooray for Economic Honesty

To his great credit, Obama is going to be honest about the budget.

"After eight years of budget practices that often camouflaged federal spending, President Obama is planning a new strategy of putting on the books as many costs as possible to demonstrate the extent of the nation's economic troubles, senior White House officials say."
...
"The president is determined to treat the American people as adults"

This is partly political, since it exposes how bad off we are today, so that any improvements are more obvious and reflect well upon Obama. But it is refreshing honesty and necessity. Until Americans soberly understand the facts of where we are in deficits, borrowing, and entitlements, there will be little political will for change.

Obama's tentative calls for entitlement reform, combined with increased revenues from letting some of Bush's tax cuts lapse, seem a good direction to start. Just like it took Nixon to go to China, it will probably take a democrat to reform entitlements.

Obama's Mortgage Bailout Plan

The Center for American Progress has an article praising the (tentative) Obama mortgage relief plan. Overall, I'm not sure about all the details of the still sketchy plan, many make sense, but some comments.

"The administration estimates that the average homeowner will be protected from $6,000 in price declines on their homes as a result of their plan."

Since this administration has already thrown out clearly imaginary and unmeasurable numbers on the numbers of jobs that will be saved/created by the stimulous plan, without some hard data I don't believe this. However, even if true, the recent 1 trillionish stimulus plan adds about $3000 in debt to every American. And surely more debt to the wealthier types who own a house. So a couple that owns a house easily has $10000 in increased debts. The $75 Billion in TARP funds to be spent on just this mortgage plan adds about $250 in debt to every American. If you assume an "average" household of 4 people, that's $1000 debt. Factor in that they are probably wealthier and pay more taxes, and you could estimate more like $2000 and up. So it isn't clear to me that this $6000, even if believable, is worth it.

"Importantly, this element of the Obama plan is expected to be nearly costless, as the losses from reduced interest payments are offset by not incurring high foreclosure costs."

I don't know the exact details of the math to support this, but, even if true, this seems to assume that all these houses will be foreclosed. So, if you assume the worst, we aren't paying any more than the worst. Not exactly high praise. Plus, I wonder if this math assumes that none of the newly "saved" mortgages will face foreclosure. I've been seeing recent figures that these "saved" and refinanced mortgages are still defaulting, a few months later, at a near 50% rate.

Don't get me wrong. I do want to see housing prices stabilize, which can only happen with fewer foreclosures, plus incentives (tax breaks, lower interest rates) to encourage first time buyers into the market. I've proposed my own "brilliant" plan. Obama's program has some interesting ideas. But I don't think that claims that it will cost nothing and prop up housing values by some imaginary number they pulled out of their backside are good arguments for it.