ACRU General Counsel Peter Ferrara wrote this column appearing October 6, 2010 on The American Spectator website.
Starting on January 1, 2011, President Obama’s economic recovery policy will begin the implementation of comprehensive, across the board, tax rate increases for every major federal tax. The full breathtaking scope of those tax increases, and how they will harm every family in America, is discussed in my latest work, President Obama’s Tax Piracy, published as part of Encounter’s Broadside series. That series now includes 17 publications by such outstanding authors as Steve Moore on economic policy, John Bolton on national defense and American sovereignty, Betsy McCaughey on Obamacare, Michael Ledeen on Obama’s betrayal of Israel, Michael Mukasey on terrorism, Roy Spencer on “global warming,” and John Fund on Obama’s election fraud, all in the tradition of Thomas Paine’s Common Sense pamphlets.
Among the bonehead increases that beckon to shove the economy back into recession is a nearly 20% increase in the top two income tax rates, counting the phase-out of deductions and exemptions. The top capital gains tax rate is scheduled to soar by nearly 60%, counting the application of Obamacare’s new 3.8% tax on investment income. The tax rate on dividends is scheduled to nearly triple, from 15% to 43.4%, counting the new Obamacare tax as well. The Obamacare legislation also increased the Medicare HI payroll tax rate by 62% for the nation’s employers and investors. On our current course, the death tax will rise from the grave next year with a 55% top rate.
At least that was the plan. But the Democrat Congress left town without ever making good on candidate Obama’s pledge to the American people in 2008 to avoid any tax increase on those making less than $250,000 a year, by extending all of the Bush tax cuts for everyone below that income level. That means under current law federal income taxes will now increase next year for virtually every American. The bottom income tax rate of 10% will soar by 50% to 15%, and every other income tax rate will rise by a similar amount. The child tax credit will be slashed by 50% from $1,000 per child to $500 per child. The marriage penalty will also rise from the grave to tax more heavily those who are married rather than those who are just living together.
A family of four earning $50,000 per year will pay more than $2,100 in higher taxes. A single mom earning $36,000 per year will pay over $1,100 more in taxes. Married senior citizens earning $40,000 per year will pay more than $1,400 in higher taxes.
If you have been listening to President Obama’s rhetoric, you would be thinking how could failing to extend the Bush tax cuts result in all these tax increases on everybody, since Bush supposedly cut taxes only for the rich. That is why you should not be listening to President Obama’s misleading, manipulative, deceptive rhetoric.
Baghdad Bob Economics
In case you have forgotten Baghdad Bob, he was the Saddam Hussein propaganda minister who called a press conference just before American forces entered Baghdad in 1991 to announce that those forces had been massacred in the desert by Saddam’s military machine. With Saddam gone, Baghdad Bob now has a new gig. He is in charge of economic and tax policy propaganda for the Democrat party.
You can see the results of his work on national television all of the time. Joy Reid, Keith Boykin, and Christian Weller show up to argue that cutting tax rates for employers and investors causes recessions and economic calamity, such as the financial crisis. Indeed, President Obama is saying the same thing all the time with his rhetoric about “the failed policies of the past” that “got us into this mess.”
That’s not even Keynesian economics. Rather than John Maynard Keynes, or even Karl Marx, that economic “logic” follows more in the tradition of Jim Jones, and the Jonestown school of economic policy. Joy Reid adds to this body of work her “argument” that increasing real savings and investment for retirement would only cause another bubble in the markets. Reid was voted Netroots Blogger of the Year, which shows how much deep trouble our country is in as long the people identifying themselves as Progressives are anywhere near the levers of government power.
I explain in my Broadside publication how President Obama has consistently followed exactly the opposite of every plank of Reaganomics. As a consequence, we can rightly expect that America will now suffer exactly the opposite results, unless those economic policies are quickly overturned by new Congressional majorities.
In 1983, President Reagan’s third year, his tax rate cuts became fully effective, and real GDP zoomed upward over the first 4 quarters of recovery by 7.7%. That recovery flowered into a generation-long, 25-year economic boom, interrupted only by two short, shallow recessions, following President Bush’s budget deal increasing tax rates in 1990, and the 9/11 terror attack in 2001.
Art Laffer and Steve Moore have rightly called this Reagan boom “the greatest period of wealth creation in the history of the planet.” Indeed, more wealth was created in America during this 25 year boom, from 1983 to 2007, than in all the prior 200 years of American history, from George Washington to Jimmy Carter, combined. That is why Steve Forbes has rightly called it an “economic Golden Age.”
The mirror image opposite of this economic performance would be the natural, logical result of following the mirror image opposite of Reagan’s economic program, including the counterproductive incentive effects of Obama’s comprehensive federal tax rate increases, the costs and burdens of Obama’s reregulation hitting next year, and the continued drain of private sector resources due to President Obama’s supposedly stimulative spending increases and deficits. Laffer explains:
[W]hen the U.S. economy comes to 2011, the train’s going to come off the tracks…. The tax boundary that will occur on January 1, 2011 tells me that GDP growth in 2010 will be some 6% to 8% higher than GDP growth in 2011. A year on year decline from trend of some 6% to 8% in GDP growth would represent a larger collapse than occurred in 2008 and early 2009.
We see signs of that already even in this year’s economy, which, again just the opposite of Reagan’s performance, should be the peak economic year in President Obama’s reign of error. Economic growth is in a tailspin, falling from 5% in the fourth quarter of 2009, to 3.7% in the first quarter this year, to 1.6% in the second quarter. Unemployment is rising again, with the economy continuing to lose jobs every month. The stock market has been long stalled, mired 30% below its record highs over 14000 in the Dow. This weak economy couldn’t be a worse time to raise Federal tax rates across the board. With President Obama’s current economic policies, the probability of a renewed, double-dip recession is over 100%.
Further confirmation of that can be found in Don Luskin’s insightful article in Monday’s Wall Street Journal, “The Trade and Tax Doomsday Clocks.” He explains how President Obama’s impending policies of comprehensive tax rate increases and exploding trade protectionism follow exactly the policies of the 1930s that put the “Great” into the “Great Depression,” as Amity Shlaes recounted it in her prescient book, The Forgotten Man. Luskin’s conclusion, “That means instant double-dip recession, starting at midnight, Dec. 31.”
Luskin’s article includes a chart showing how closely the stock market has been tracking the market of 1936-37 over the past year and a half. We are right now at a peak on that tracking chart, just before a nearly 40% market collapse in 1937, reflecting the renewed collapse of the economy that year back into the “depression inside the Depression.”
This is where President Obama’s Jonestown school of economics, and all of his Baghdad Bob TV talking heads are taking us.
The “Rich” and Their Fair Share
But the economy be damned. We need President Obama’s comprehensive tax increases so the rich will pay their fair share. Don’t we?
Even before President Obama was elected, official IRS data showed that in 2007 the top 1% of income earners paid 40.4% of all federal income taxes, almost twice their share of adjusted gross income. The top 5% paid 60.6% of all federal income taxes, while earning 37.7% of adjusted gross income. The top 10% paid 71.2% of all income taxes, while earning 48% of adjusted gross income. This is before all of President Obama’s tax increases.
Meanwhile, the bottom 50% of income earners paid only 2.9% of all federal income taxes. Indeed, the bottom 95% of income earners paid 39.4% of all federal income taxes. That means the top 1% of income earners pay more federal income taxes than the bottom 95%!
Which should lead you to ask regarding “the rich,” just what would be their “fair share”?
IRS data also shows that those on whom President Obama wants to increase taxes, earning more than $200,000 a year, constitute just 3% of taxpayers. Yet, that 3% pays more in income taxes than the bottom 97% combined.
This is why I call it “President Obama’s Tax Piracy.” My Broadside goes on to demonstrate the falsehood of the charge made by Obama and the Democrats that Republicans cut taxes only for the rich, and never “gave a break to folks who make less.” When President Reagan brought his supply-side economics to Washington, the top 1% of income earners paid 17.6% of all income taxes, compared to 40.4% in 2007. That is because with the lower tax rates, incomes boomed along with the economy, and high income taxpayers had the incentives to pull their money out of tax shelters and invest it in the real economy, fueling the boom. This is why Jack Kemp used to say, “If you want to soak the rich, cut tax rates.”
I go on to explain in the Broadside how Reagan and the Republicans actually abolished income taxes for the poor and the “working class,” and almost completely abolished them for the middle class, defined as the middle 20% of income earners, specifying exactly what taxes were cut and when to accomplish this, again before President Obama was even elected.
But Don’t We Need the Money?
But wait a minute, the talking heads tell us. Don’t we need the money from President Obama’s impending tax increases? Haven’t you heard of the deficit?
President Obama’s budget projects that his tax increases on “the rich” (singles making over $200,000, couples making over $250,000) would raise $678 billion in increased revenues over the next 10 years. The Obamacare legislation projected another $210 billion from the increased payroll taxes on those workers, for a total of nearly $1 trillion. But these tax increases won’t raise anywhere near the revenue projected.
Over the past 40 years, every time capital gains tax rates have been cut, revenues have increased, and every time capital gains tax rates have been increased, revenues have declined, as fully documented in my Broadside.
Moreover, dividends paid soared after Bush cut the dividends tax in 2003, resulting in more revenue rather than less. President Obama’s crushing dividends tax increase means that only 35 cents on average would be left out of a dollar of corporate earnings paid as dividends. That will result in a collapse in dividends paid, as corporations keep the cash to invest themselves, again resulting in less revenue rather than more.
With the top 1% of income earners already paying more in income taxes than the bottom 95% combined, the notion that still more can be gained from them by raising their tax rates is daft. Just the prospect of Obama’s higher tax rates is already causing the capital strike we are presently seeing, with corporations holding $2 trillion in uninvested capital, and banks holding $1 trillion in excess, unlent, reserves. The collapsing dollar is further reflecting capital flight to the more capitalist emerging markets in the leading, formerly third world economies. If the impending tax rate increases become reality, we will see a full scale capital and currency rout worthy of the banana republic that President Obama is making out of America.
Moreover, if those tax rate increases do produce a double-dip recession, then revenues will collapse, and the deficit will soar to 2.5 trillion.
Greek salad, anyone? With Kool-Aid.