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Obama’s Tax Policy Aims for the Rich but Hits the Poor

Although the Occupy Wall Street protest movement often shunned both organization and the formation of a coherent set of principles and demands, its antipathy to Wall Street–hence the name of the movement–was central to its cause and its grievances, real or imagined. Punishing Wall Street was a given to the protesters, because in their minds the city’s kings of finance were greedy oligarchs hoarding their wealth. But occasionally the OWS protesters accidentally stumbled upon some cold hard facts that undercut their complaints, such as when New York City Councilman Daniel Halloran approached the crowd and told them:

I think there needs to be Wall Street reform, but we also have to remember that one-third of the city’s revenue comes from Wall Street right now, OK? One-third of the city’s revenue stream already comes from Wall Street.

Halloran’s tone was patient, but he stressed the word already, as if to say: How much more of other people’s money do you want to take (a dangerous question when asked to liberals) and what do you think will happen to the poor if we punish the wealth creators on Wall Street who are already funding a third of the city’s revenue stream? That question was implied, not asked; but Joel Kotkin more or less asks and answers it over at Forbes:

With their enthusiastic backing of President Obama and the Democratic Party on Election Day, the bluest parts of America may have embraced a program utterly at odds with their economic self-interest. The almost uniform support of blue states’ congressional representatives for the administration’s campaign for tax “fairness” represents a kind of bizarre economic suicide pact.

Any move to raise taxes on the rich — defined as households making over $250,000 annually — strikes directly at the economies of these states, which depend heavily on the earnings of high-income professionals, entrepreneurs and technical workers. In fact, when you examine which states, and metropolitan areas, have the highest concentrations of such people, it turns out they are overwhelmingly located in the bluest states and regions.

As Thomas Frank might say, What’s the matter with Connecticut (or Maryland, or New York, or California, etc.)? But there’s actually a larger problem here than liberal voters voting against their self-interest. As Kotkin shows, he’s clearly anticipated the “fairness” argument, and demonstrates that the result of Obama’s policy could very well be more inequality, less socioeconomic mobility, and sustained levels of unemployment:

What would a big tax increase on the “rich” mean to the poor and working classes in these areas? To be sure, they may gain via taxpayer-funded transfer payments, but it’s doubtful that higher taxes will make their prospects for escaping poverty much brighter. For the most part, the economies of the key blue regions are very dependent on the earnings of the mass affluent class, and their spending is critical to overall growth. Singling out the affluent may also reduce the discretionary spending that drives employment in the personal services sector, retail and in such key fields as construction.

This prospect is troubling since many of these areas are already among the most unequal in America. In the expensive blue areas, the lower-income middle class population that would benefit from the Administration’s plan of keeping the Bush rates for them is proportionally smaller, although the numbers of the poor, who already pay little or nothing in income taxes, generally greater. Indeed, according to a recent Census analysis, the two places with the highest proportions of poor people are Washington, D.C., and California. By far the highest level of inequality among the country’s 25 most populous counties is in Manhattan.

Kotkin also mentions that, by the way, the tax policy probably wouldn’t help the fiscal condition of these blue states either. But looking at California, it’s hard to argue there’s much desire on the part of Democratic policymakers there to do anything other than revel in the wreckage of their failing state and hope for a federal bailout of some sort.

Should it bother liberals that their national tax policy reflects the logic of the youthful pseudoanarchist flash in the pan that left garbage, and only garbage, in its wake? I suppose it should. By the looks of this “fiscal cliff” debate, it doesn’t.