How Else Are We Going To Pay For All This Sparkly Hay?

It is hard to believe that in this day and age we still live with the image in our collective conscience of some vast cohort of "The Rich" who, in order for the guv'mint to fund its unlimited vision of unicorns and lollipop trees, need only be compelled to belly up and start paying their fair share of income taxes.

Obama proposes spending $634 billion to overhaul the U.S. health-care system, partly paid for by limiting tax deductions for couples making more than $250,000 a year, an administration official said.

He will seek the money, to be spent over 10 years, in his first budget request to Congress today. About half would come from changes to Medicare, the health plan for the elderly, and the rest from the tax revisions, the official said. Limiting deductions for upper-income taxpayers is projected to generate $318 billion over 10 years, the official said.

Uh, huh. It's nice populist rhetoric, if you're into that sort of thing, but unfortunately, it's complete economic bunkum.

In the first place, according to FactCheck.Org, couples making more than 250K in adjusted gross income constitute a mere 3.1% of taxpayers. (They pay better than 43% of all personal income taxes already, but never mind that. The whole argument on the merits of the tax code as a tool of redistribution of wealth is best left for another day.) In the second, without even bothering to look it up, I'm going to bet that the 10 year projection of generated revenues is based on a static model, because the Donks have never quite come to grips with the concept that changes in a system of awards and penalties - here encapsulated in the marginal tax rates that "the Rich" pay on that extra dollar of income - cause changes in the behavior of people subject to it.

Christ, I'm an English major and even I understand that!

So. Crank the highest marginal rate and/or limit deductions. Go ahead! Why not? It makes good headlines. But sooner or later, those paying the taxes will decide they've had enough and will find alternate ways to bring in the readies (or simply decide that the extra dosh isn't worth it). Meanwhile, Uncle will notice that the revenue pool is shrinking (as is his portion of it). Concurrently, the projected expenditures on unicorns and lollipop trees will be revised upwards (because they always are). And before you can say snap, Uncle will decide that "the Rich" include everyone making better than $200K AGI. Then it'll be $150K. Then $100K. And so on.

Which brings me back to my original point: All those taxpayers experiencing a frissom of shadenfreude at the thought of The Rich getting sockoed had better enjoy it while they can, because Uncle is going to be at their door next.