The fiscal cliff saga was just one round in larger debate the country is having about the size of the federal government and who should pay for it.This morning, hedge fund billionaire Cliff Asness through his two cents in with an op-ed in The American that would probably upset more than a few people. Asness says that if the U.S. wants to finance a “big European-style welfare state”, the middle class is going to have to see its taxes increase — the rich can’t finance the whole project alone, and the poor simply don’t have the funds.
Spending cuts alone, he said, won’t do it either. Those are two truths the government has to face.
And to the first point, raising classes on the middle class is just easier and faster than raising them on the rich.
…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.
That’s not to say it’s impossible to get more money from the rich, but it’s tricky and past attempts have typically been less effective than forecast and often counterproductive. Moreover, even under the most optimistic assumptions, taxes on the rich — or taxes on businesses, financial transactions, or anything else aimed at the rich (and often hitting others) — will still not cover a large fraction of the costs of a European-style welfare state. Ask the Europeans — they’ve tried it all and failed.
Of course, this op-ed begs a few questions. Do Americans even want a big European style welfare state? Also, didn’t the European style welfare state fail, in part, because some countries (i.e. Greece) were rife with tax evasion from all classes?
It’s a thought.