Two Predictions About Obama`s Budgets
February 28, 2009, 12:30 AM
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Obama`s economic thinking remains stuck in 2007. He assumes he can turn American into a social democratic state by taxing the top two percent, by closing loopholes on hedgefund managers, and the like.

Yet, the problem of the rich getting richer largely solved itself in a few days in early autumn of 2008. I suspect that hedge fund managers won`t be a bottomless source of taxable income in 2009, and for a number of years to come.

So, Obama will eventually realize that he`ll have to squeeze the upper middle class: families making from, say, $90,000 to $250,000. He`ll have to raise income tax marginal rates on this broad expanse.

But a lot of Obama voters fall in this range. Moreover, in the Blue States, $90,000 to $250,000 isn`t necessarily a huge amount of money. A family of four making $150,000 in Tulsa is probably living well, while one in Manhattan is not.

So, I predict that eventually, Obama will be tempted to try to adjust the tax code for the local cost of living: impose higher tax rates on the Oklahoma family making $150k than on the New York family making the same income.