Is President Obama Really A Socialist? Let’s Analyze Obamanomics

This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published December 20, 2012 on

President Obama says that income taxes must be raised on the rich because they don’t pay their fair share. The indisputable facts from official government sources say otherwise.

The CBO reports based on official IRS data that in 2009 the top 1% of income earners paid 39% of all federal income taxes, three times their share of income at 13%. Yet, the middle 20% of income earners, the true middle class, paid just 2.7% of total federal income taxes on net that year, while earning 15% of income. That means the top 1% paid almost 15 times as much in federal income taxes as the entire middle 20%, even though the middle 20% earned more income.

Moreover, the official data, as reported by CBO and the IRS, show that the bottom 40% of income earners, instead of paying some income taxes to support the federal government, were paid cash by the IRS equal to 10% of federal income taxes as a group on net.

Any normal person would say that such an income tax system is more than fair, or maybe that “the rich” pay more than their fair share. So why does President Obama keep saying that the rich do not pay their fair share? Is he ignorant? Wouldn’t somebody in his Administration whisper to him that he is peddling nonsense?

The answer is that to President Obama this is still not fair because he is a Marxist. To a Marxist, the fact that the top 1% earn more income than the bottom 99% is not fair, no matter how they earn it, fairly or not. So it is not fair unless more is taken from the top 1% until they are left only with what they “need,” as in any true communist system. Paying anything less is not their “fair” share. That is the only logical explanation of President Obama’s rhetoric, and it is 100% consistent with his own published background.

Notice that Obama keeps saying that “the rich,” a crass term implying low class social envy, don’t “need” the Bush tax cuts. That is reminiscent of the fundamental Marxist principle, “From each according to his ability, to each according to his need.”

Good tax policy is not guided by “need.” It is guided by what is needed to establish the incentives to maximize economic growth. The middle class, working people and the poor are benefited far more by economic growth than by redistribution. That is shown by the entire 20th century, where the standard of living of American workers increased by more than 7 times, through sustained, rapid economic growth.

But President Obama’s tax policy of increasing all tax rates on savings and investment will work exactly contrary to such economic growth. It is savings and investment which creates jobs and increases productivity and wages. Under capitalism, capital and labor are complementary, not adversarial, exactly contrary to the misunderstanding of Marxists. More capital investment increases the demand for labor, bidding up wages to the level of worker productivity, which is enhanced by the capital investment.

Increasing marginal tax rates on savings and investment, however, will mean less of it, not more. That will mean fewer jobs, and lower wages, just as we have experienced so far under President Obama, with median household incomes (hello middle class) declining by 7.3% (a month’s worth of wages) during his first term, even faster after the recession supposedly ended in 2009. That will only get worse in Obama’s unearned second term, which can only be explained as “democracy failure” analogous to “market failure.”

If the tax increases are limited to those who earn $1 million or more, I don’t know if that alone will be enough to create a recession, as I am certain would be the result with Obama’s original policy of targeting couples making over $250,000 a year, and singles making over $200,000.

But there is so much in the Obama economic program that is contractionary. His second term promises enormous new regulatory burdens and barriers. The EPA is shutting down the coal industry, and Interior will join with it to sharply constrain oil production further, despite Obama’s duplicitous campaign rhetoric taking credit for the production produced by the policies and efforts of others. I expect Obama’s EPA to burden natural gas fracking until it goes the way of the coal industry as well, stealing new found prosperity for many Americans. All of this will sharply raise energy prices, which will be another effective tax on the economy.

Moreover, President Obama has said that a priority in his second term will be global warming, even though global temperatures have not been increasing for 16 years now, and the developing world led by Brazil, Russia, India and China (the BRIC countries), which are contributing to “greenhouse gases” at a much greater accelerating rate than the U.S., have rejected sacrificing any slice of their economies to that ideological phantom. While even the Democrat Congress of Obama’s first term failed to adopt “cap and trade,” EPA is advancing with global warming regulations that will cost the economy trillions in still another effective tax.

Then there are the onrushing regulatory burdens of Obamacare, including the employer mandate, which will require all businesses with 50 employees or more to buy the most expensive health insurance available. That will be an effective tax on employment. As Obamacare forces up the cost of health insurance, that will be still another effective tax increase on all employers already providing health coverage. Hundreds of regulations still in the pipeline under the “Dodd-Frank” legislation are already forcing the financial sector to contract, and threaten the business and consumer credit essential to full recovery.

In addition, few are adequately considering the longer term contractionary effects of the Fed’s current policy mischief. For years now, businesses and investments have been launched all over the country based on the near zero interest rates, and even below zero real rates, that Fed policies have perpetuated, along with the easy free money. When those rates inevitably rise back to normal, most likely after these Fed policies have resparked inflation, the basis for those businesses and investments will be gone, and many if not most will go into liquidation, which will be highly contractionary as well.

However, I am certain in any event that the Obama tax increases will result in less revenue rather than more. Obama has been proposing to increase the capital gains tax rate by 58% on the nation’s job creators, investors and successful small businesses, counting his Obamacare tax increases that take effect on January 1 as well the expiration of the Bush tax cuts. While his misleading talking points say there will be no tax increases for 97% of small businesses, that counts every Schedule C filed for every part time or hobby sole proprietorship, however marginal the earnings. The small businesses that would bear President Obama’s originally proposed tax increases earn 91% of all small business income, and employ 54% of the total private sector U.S. work force, as reported in Investors Business Daily on November 9.

Over the last 45 years, every time capital gains tax rates have been raised, revenues have fallen, and every time they have been cut, revenues have increased. The capital gains rate was raised 4 times from 1968 to 1975, climbing from 25% to 35%. The 25% rate produced real capital gains revenues in 1968 of $40.6 billion in 2000 dollars. By 1975, at the higher rate, capital gains revenues had plummeted to $19.6 billion in constant 2000 dollars, less than half as much.

After the capital gains rate was cut from 35% to 20% from 1978 to 1981, capital gains revenues had tripled by 1986 compared to 1978. Then the capital gains rate was raised by 40% in 1987 to 28%. By 1991, capital gains revenues had collapsed to $34.4 billion, down from $92.9 billion in 1986, in constant 2000 dollars adjusted for inflation.

Obama’s capital gains tax increase next year will reduce capital gains revenues again as well.

Similarly, when President Bush slashed the income tax on corporate dividends, dividends paid soared, and revenues from taxation of those dividends soared along with them. With Obama’s tax on dividends reversing that Bush tax cut, those revenue gains will also be reversed.

Finally, those earning over $1 million are the most financially agile of all taxpayers. They can move, shelter, and transform income more easily than anyone else. Most likely, the number of American millionaires, or at least American taxpayers reporting a million in income, will plummet after the Obama tax increases, and so will income taxes paid by millionaires.

Of course, if the tax increases and other policies of Obamanomics push the economy back into recession, total federal revenues will decline rather than rise. Federal deficits and debt will soar further, along with unemployment and poverty, while jobs, wages and incomes decline further. That is what happened the last time federal economic policy followed the preferred prescription of the Washington Establishment, and also adopted a package of tax increases, in return for chimerical spending reductions, when George H.W. Bush was President.

Can such public policy malpractice make any sense? President Obama says it is “fair” in his redistributionist sense of fairness. But what is fair about fewer jobs, lower wages, and higher unemployment, poverty, federal deficits, and national debt, at the price of higher taxes, for anybody?

What is fair is a flat tax, where everyone pays the same tax rate, which is true equality. Under such a tax system, if you, dear reader, make 10 times what I do, then you pay 10 times what I do, not 20, 30 or 40 times, as advocated by so-called “progressives,” (a polite, Americanized term for Marxist). If President Obama wants Warren Buffett to pay the same tax rate as his Secretary, he can adopt that flat tax, and the economy will boom. But President Obama seems to think that the increased dependence of further recession best suits his political interests, and those of the Democrat Party, rather than the independence fostered by a booming economy. See what I mean by “democracy failure?”