His Biggest Big Lies
This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published September 21, 2011 on The American Spectator website.
If you work hard, play by the rules, save your money, create jobs, and make a success out of yourself, President Obama and the Democrat party will plunder everything you have worked so hard for, because in their view that is only fair.
That is the meaning of the policies President Obama is espousing as he campaigns for re-election around the country this week. As Mark Steyn has explained, there is no bill yet that the President is demanding Congress pass, it won’t create any jobs, and there is no money to pay for it. It is just a traveling road show, and we need to start to hold accountable our relatives, friends and neighbors who would fall for it, and thereby darkly threaten the entire future of America.
Campaigning for re-election on Monday, President Obama said,
Middle-class families shouldn’t pay higher tax rates than millionaires and billionaires. That’s pretty straightforward. It’s hard to argue against that. Warren Buffet’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it. It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million. Anybody who says we can’t change the tax code to correct that…. They should have to defend that unfairness — explain why somebody who’s making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that — paying a higher rate. They ought to have to answer for it.
Let me educate you, Mr. President, even though I am quite certain you are not interested in hearing any answer that contradicts your committed religious beliefs. But the truth is that the unfairness you discuss is a fantasy. The facts are just the opposite.
Even before you were elected, Mr. Obama, under the tax policies adopted by President Reagan, House Speaker Newt Gingrich, and the much vilified President George W. Bush, official IRS data for 2007 showed that the top 1 percent of income earners paid more in federal income taxes than the bottom 95 percent combined! The top 1 percent of income earners that year earned 22 percent of income but paid 40.4 percent of total income taxes. When Reagan became President, the top 1 percent paid 17.4 percent of income taxes, as I note in my recent book, America’s Ticking Bankruptcy Bomb. As Jack Kemp used to say, if you want to soak the rich, cut tax rates. Moreover, the bottom 40 percent plus of income earners now pay no federal income tax on net as a group.
So if “the rich” are not paying their fair share, Mr. President, what would that fair share be? Based on these official facts, for you to run around the country telling America that we could have jobs and balance the budget and solve the debt crisis you are creating if the rich would just pay their fair share of taxes only demonstrates that you are not qualified to be President. Either you don’t understand the basics of America’s tax policies even after you have been President for three years, or you are engaged in calculated deception thinking your fairy tale will fool enough gullible people that you can be re-elected despite an economic record so bad that it is threatening to rival the Great Depression.
As the Wall Street Journal further explained yesterday, in 2008 official IRS data shows that taxpayers earning over $1 million paid an average federal income tax rate of 23.3 percent. Those earning between $500,000 and $1 million paid an average federal tax rate of 24.1 percent. As the Journal further elaborated, “that is more than twice the 8.9% average rate paid by those earning between $50,000 and $100,000, and more than three times the 7.2% average rate paid by those earning less than $50,000. The larger point is that the claim that CEOs are routinely paying lower rates than their secretaries is Omaha hokum.”
Actually it is a Warren Buffett scam. His company that made him rich, Berkshire Hathaway, itself is a sophisticated tax shelter. If tax rates are raised, that will only lead more of the wealthy to flee to investing in his company to avoid the abusive multiple taxation. The IRS claims that Buffett’s company owes a billion dollars in back taxes. If Buffett thinks the rich don’t pay their fair share, why is he fighting this? Why doesn’t he just pay his fair share as required under current law?
Buffett is just playing all of us like President Obama is. What a disgrace that our public debate has fallen this low, to this level of rank, manipulative dishonesty.
And the above doesn’t even count the corporate income tax. America suffers from virtually the highest corporate tax rate in the industrialized world, nearly 40 percent on average counting state corporate income taxes. Even Communist China has a 25 percent corporate rate. The average rate in the European Union, which is reputedly mostly socialist, is even less than that. In formerly socialist Canada, the corporate tax rate is 16.5 percent, slated under current law to fall to 15 percent next year. Compared to America, Canada has been booming since Obama was mistakenly elected.
The Obama/Buffett ruse arises just like any other magician’s trick. It focuses attention on just one tax rate paid on income arising from capital investment — the capital gains tax rate of 15 percent. The florid abusive rhetoric distracts from the multiple taxation of that income, which is actually taxed at least four separate times under our tax code. Capital investment income is taxed first by the above mentioned, abusive, internationally uncompetitive corporate income tax. If any is paid out as dividends, then it is taxed again by the individual income tax. If the value of the capital interest, say a share of stock, manages to increase in the Obama depression, then it is taxed again by the capital gains tax. If anything is left at death, then it is subject to taxation again by the death tax.
Moreover, a basic principle of our tax code is that any business expenses incurred to produce income are deductible in the year they are incurred. But not the expenses of capital investment. Those expenses can only be deducted over several years under depreciation rules, which is yet another form of discrimination and plunder of capital investment. Moreover, the money devoted to any capital investment has already been taxed when it was earned, so that is effectively still more taxation of the same income.
That is how the top 1 percent of income earners ends up paying more than the bottom 95 percent combined. And it is why the average tax rate paid by millionaires is three times the average rate paid by the middle class.
On the basis of his abusively misleading rhetoric, President Obama in his campaign speech on Monday called for $1.5 trillion in increased taxes. That would be on top of all the tax increases for which Obama has already won enactment under current law for 2013. In that year, the tax increases of Obamacare become effective, and the Bush tax cuts, which President Obama has refused to renew for the nation’s small businesses, job creators, and investors, expire.
As a result, the top two income tax rates will go up by nearly 20 percent. The capital gains tax would soar by nearly 60 percent. The tax on dividends would nearly triple. The Medicare payroll tax would rocket up by 62 percent for these disfavored taxpayers. That is before the new tax increases our Dear Leader called for on Monday.
Those Tax Increases Are Not Paid For
President Obama said in his campaign speech on Monday that Congress should pass his jobs plan “knowing that every proposal is fully paid for.” They are paid for by his tax increases on “the rich,” which he says will raise $1 trillion, 573 billion over 10 years. But those tax increases don’t have a prayer of raising nearly that much.
Obama and Buffett are blowing smoke over the 15 percent rate on capital gains and on dividends adopted in the Bush years. But over the last 40 years, every time the capital gains tax rate has been cut, revenue has gone up. And every time the capital gains tax rate has been raised, revenue has gone down.
In 1968, a 25 percent capital gains tax rate yielded real capital gains tax revenues of $40.6 billion calculated in 2000 dollars. The capital gains tax rate was then raised four times in the next eight years to 35 percent. By 1975, at the higher rate, capital gains revenues totaled $19.6 billion in constant 2000 dollars, less than half as much.
In 1978, the capital gains tax rate of 35 percent raised $29.9 billion in 2000 dollars. The capital gains rate was then cut three times to 20 percent over the four years. By 1986, the new rate 43 percent lower than the 1978 rate raised $92.9 billion in 2000 dollars, about three times as much.
The capital gains rate was raised by 40 percent the next year, to 28 percent. Capital gains revenues fell to $56.2 billion that year, and declined all the way to $34.6 billion by 1991.
The reason for this is that when the capital gains rate was cut, more taxpayers sold their capital and realized their gains, and a rising stock market produced more gains. When the rate was increased, more taxpayers held on to their capital and a declining stock market cut off the gains.
You might say that the estimate Obama gives for his tax increase just reflects the official scoring of the proposal from the Congressional Budget Office and Joint Tax Committee. But in 1997, Congress was considering a cut in the capital gains rate from 28 percent back down to 20 percent. The Joint Tax Committee (JTC) estimated that as a result revenues would increase by $7.8 billion from 1997 to 1999, but the tax cut would produce a loss of $28.8 billion over the following seven years, for a net loss of $21 billion over the 10 year period.
The actual numbers after the tax cut was passed showed an increase of $84 billion over the pre-tax cut projections for 1997 to 2000. Despite an almost 30 percent cut in the rate, capital gains revenues rose from $62 billion in 1996 to $109 billion in 1999.
Similarly, Congress considered cutting the capital gains rate again in 2003, from 20 percent to 15 percent. The JTC estimated that this would cause a loss of revenue of $5.4 billion from 2003 to 2006. But after Congress passed the tax cut, capital gains revenues increased by $133 billion during those years, as compared to the pre-tax cut projections. As Dan Clifton of the American Shareholders Association said, “There is no excuse for this $138 billion error.” Capital gains tax revenue doubled from 2003 to 2005 despite a 25 percent cut in the tax rate.
Similarly, when the tax rate on dividends was cut to 15 percent in 2003, dividends paid soared, and so did the resulting revenue.
So if we effectively raise these rates again under President Obama’s tax piracy proposals, revenues will most likely decline rather than rise. If those tax increases push the economy back into recession, federal revenues will decline across the board, and the national debt will soar further.
Moreover, there is further miscalculation in Obama’s proposals. He claims $2 in spending cuts for every $1 in tax increases. But most of his spending cuts involve $1.84 trillion in supposed savings due to the withdrawals from Iraq and Afghanistan over the next 10 years that have long been expected. President Bush signed a peace treaty with Iraq providing for withdrawals in 2008.
Another $436 billion in spending cuts are from assumed interest savings due to the supposed spending cuts in the plan. But interest rates over the next 10 years will only rise from the current historic low levels. Moreover, there are no net spending cuts in the plan. The remaining cuts outside the planned reductions in Iraq/Afghanistan spending over the next 10 years total $577 billion. But the proposal involves $447 billion in increased “stimulus” spending for the President’s so-called Jobs Plan. In addition, $320 billion of the remaining $577 billion are cuts to Medicare and Medicaid mostly involving further reduced payments to doctors and hospitals providing health care to the poor and elderly under those programs. That only threatens the continued provision and quality of that health care.
Class Warfare: Making War on Working People
Before this last recession, since the Great Depression recessions in America lasted an average of 10 months, with the longest previously lasting 16 months. But in August 2011, 44 months after the last recession began, unemployment was stuck at 9.1 percent, with exactly zero jobs created for the month, leaving over 25 million Americans unemployed or underemployed. This is the longest period of unemployment that high since the Great Depression, when Keynesian economics first reigned supreme.
Unemployment for African-Americans in August was 16.7 percent, stuck at depression levels for over 2 years. Hispanic unemployment at 11.3 percent has been in double digits for over 2 years as well. Teenage unemployment was a depression level 25.4 percent. Black teenage unemployment was at a Jim Crow level 46.5 percent.
The U6 unemployment rate, reflecting total unemployment and underemployment, was 16.2 percent. And that still doesn’t fully count the millions of Americans who have given up and dropped out of the work force altogether.
The Census Bureau reported on September 14 that median family income has fallen all the way back to 1996 levels. As the Wall Street Journal explained the next day, “Earnings of the typical man who works full time year round fell, and are lower — adjusted for inflation — than in 1978.”
Census also reported that the poverty rate climbed to 15.1 percent, higher than in the late 1960s when the War on Poverty was getting underway, $16 trillion ago. The child poverty rate climbed to 22 percent, nearly a quarter of all American children. The total number of Americans in poverty is higher than at any time in the over 50 years that the Census Bureau has been tallying poverty.
Obama apologists cannot argue that this is because the recession he inherited was so bad. The historical record for the American economy is the worse the downturn the stronger the recovery. Based on the historical record, we should be completing our second year of a booming recovery by now.
These are the natural results of Obama’s class warfare. If you try to rob the rich, you only end up stealing from the poor and working people. That is because the poor and working families have the most to lose when the economy turns bad, as they lose the jobs and wages they need to maintain a basic standard of living.
Most small business income is earned by singles making over $200,000 or families making over $250,000. Obama’s $1.5 trillion tax increase, and his 2013 tax increases, will fall precisely on these small business earners. And most jobs are created by small business.
Moreover, what creates jobs is capital investment. Virtually all of Obama’s tax increases will fall on capital investment, as proposed in his supposed jobs plan, and in 2013. The result would be even fewer jobs. If the economy falls back into recession, unemployment will soar further, along with government spending, deficits and debt.
But Obama figures the suckers will have re-elected him by then, and he could care less.