Tuesday, February 22, 2011

What If We All Were Rich?

Extrapolating from current trends.  Still popular.

via John Goodman's Health Policy Blog by John Goodman on 2/9/11

Barack Obama has said on numerous occasions that if you make less than $200,000 he wants the government to look after you, but if you make more than that you're on your own and can fend for yourself.
Okay, I know those weren't his exact words. But it's a reasonable approximation.
Now consider this. What if we lived in a world where the average family earned more than $200,000? What if almost every family earned more than $200,000? I'll tell you in a moment why it's reasonable to speculate this way and why it's relevant for current public policy. First, I want to consider the implications of almost everybody being rich.
For one thing, we could forget the funding problems of Social Security and Medicare. People who are rich can take care of themselves. In fact, without too much trouble we could cut the federal budget in half. We could eliminate the federal debt in fairly short order. Then we could cut everyone's federal taxes in half. We wouldn't need ObamaCare. There would be no appealing argument for card check. In fact, other than some environmental goals, the entire Obama domestic policy agenda would become unnecessary, superfluous and undesirable. Indeed, from the Obama administration's point of view, if everyone were rich there would be almost nothing for government to do!
Have I got your attention? Okay, now I'll tell you why this is not a pipe dream.
As Gary Becker pointed out the other day, from the middle of the 19th century to the end of the 20th century (about 150 years), real per capita income in the United States grew at an average rate of 2%. What if that growth rate continued for another 150 years?
If so, average income would double every 36 years. So today's average household income of $52,020 would exceed $100,000 (at today's prices) in 36 years and would double again to $200,000 after 72 years. Now if that doesn't knock your socks off, you need to know that 75 years is the planning horizon for Social Security and Medicare. It is smack dab in the middle of the retirement period for today's young people — people who think they are more likely to see a UFO than get the entitlement benefits they've been promised.
If we had to choose between shoring up today's entitlement programs and making sure that real income grows at 2% per year, shouldn't the latter be the more important goal? More specifically, suppose we have to choose between shoring up the entitlement programs with taxes on the rich (read: high taxes on capital) and a pro-growth policy (read: low taxes on capital). The choice should be a no-brainer.
Let's all get rich and make the welfare state a relic of the past.

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