Will taxing the rich save the middle class?

By Joel Mathis and Ben Boychuk

Wednesday, Jan. 28, 2015 | 2 a.m.

President Barack Obama last week proposed raising taxes on the rich to fund programs that will benefit the middle class, including a tax cut for middle-income wage earners. “The notion … that in order for some people to do better, someone has to do worse is just not true,” GOP Sen. Marco Rubio said.

But the president noted that America’s richest have been doing better for years, while middle class wages have stagnated. “Will we accept an economy where only a few of us do spectacularly well?” he asked.

Should the government redistribute wealth? Joel Mathis and Ben Boychuk debate the issue.

Mathis

What took him so long?

Yeah, Obama’s been busy the past few years, but the plight of the middle class isn’t exactly news. Middle-class incomes have been stagnating since the 1970s, and it’s a problem that economists and observers on the left have been talking about for years.

So: Great for the president. Glad he finally caught up.

Of course, the cries of “redistribution” are at full volume from our conservative friends. “The notion … that in order for some people to do better, someone has to do worse is just not true,” Rubio says, and it would be wonderful if he felt the same way when it was the middle class that was getting squeezed instead of the rich .

But we can talk another time about how government has long been at work redistributing income to America’s wealthiest citizens and how a change in focus to redistribute wealth downward from the top would be welcome indeed.

Instead, a question: Will Obama’s middle-class programs work?

And the answer is: Meh, maybe. There’s certainly financial security to be found in marriage, and there’s evidence that Americans are delaying marriage because they don’t think they can afford it. If a tax cut eases the minds of those Americans and helps them ultimately thrive on their own, who can argue?

But the manufacturing jobs that once supported the middle class have largely been shipped overseas, and the unions that helped laborers achieve middle-class wealth have all but disappeared from the American landscape. We haven’t figured out how to sustain a middle class without those elements — it’s an open question whether it’s possible. We no longer live in a society that effortlessly produces middle class jobs; unless and until that issue is resolved, all the targeted social programs in the world will be mere Band-Aids.

So: Glad Obama sees the problem. The solution? Still to be found.

Boychuk

The republic may be crumbling, but at least the economy appears to be on the mend after more than five years of anemic “recovery.” Rather than encouraging more economic growth, the president last week outlined a policy agenda certain to hobble it — again.

In his State of the Union address, Obama said that, thanks to “a growing economy, shrinking deficits, bustling industry and booming energy production,” the U.S. has “risen from recession.”

Is it true? Not without caveats. The U.S. gross domestic product grew nearly 3 percent last year, accelerating its pace from a crawling 2 percent annual growth rate to something like a slow walk.

Historically speaking, for the U.S. economy to really deliver on more jobs and higher wages, annual GDP growth needs to be closer to 4 percent, and employers should be hiring 300,000 to 400,000 workers a month, rather than the current average of 250,000. One quarter of 5 percent growth does not a roaring economy make.

Despite all this, Obama has concluded the time is right for a $320 billion tax increase to expand existing federal programs and create new ones.

The president’s proposed tax hikes target the rich, but not only the rich. It would also take a cudgel to investors. More important, the middle class will pay, too, for the privilege of new middle-class entitlements.

Consider the president’s greatly hyped proposal to offer most Americans two years of “free” community college. The plan would cost $60 billion over 10 years to cut tuition that is practically free in most states anyway, greatly increasing demand on already-overcrowded community colleges.

And to pay for it, the president wants to reimpose a tax on 529 college savings plans, which allow millions of Americans to deposit and withdraw money tax-free for college tuition, which is very expensive nowadays. In other words, he would tax responsible, middle-class savers to pay for a new program that promises more than it could ever deliver.

Congress is certain to squash this folly. But opposition isn’t enough. The Republicans need to show why the president’s plan would hurt more than it helps, and force the lame duck to explain why he opposes policies that would truly unleash the U.S. economy.

Ben Boychuk is associate editor of the Manhattan Institute’s City Journal. Joel Mathis is associate editor for Philadelphia Magazine.