This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published February 15, 2012 on The American Spectator website.
You have probably heard by now the disastrous performance by new White House Chief of Staff Jack Lew on the Sunday morning talk shows last weekend. When it was noted on CNN’s State of the Union that the Democrat-controlled Senate has not passed a budget for 1,019 days now, almost three years, in violation of federal law, Lew said, “You can’t pass a budget in the Senate of the United States without 60 votes, and you can’t get 60 votes without bipartisan support. So unless Republicans are willing to work with Democrats in the Senate, [Majority Leader] Harry Reid is not going to be able to get a budget passed.”
Later that day, on NBC’s Meet the Press, Lew repeated in response to the same question, “One of the things about the United States Senate that I think the American people have realized is that it takes 60, not 50, votes to pass something.”
The problem is not only that it takes no more than 51 votes to pass a budget resolution under Senate rules. Indeed, it only takes a simple majority of the Senators present. The problem is that Jack Lew has served twice before as Director of OMB, so there is no doubt that he knows this.
I have discussed many times before in this column President Obama’s Marxist Saul Alinsky tactic of Calculated Deception. That is President Obama’s practice of taking advantage of what he is sure the average person doesn’t know, and won’t be told by the Democrat Party-controlled media, to mislead the people about the truth.
Jack Lew’s dishonesty on last Sunday’s talk shows is a perfect example of this. In fact, it is dishonest and misleading to the point of being dishonorable. That is why Jack Lew must now resign for lying to the American people, the same way the Democrats insisted that President Nixon must resign for lying to the American people.
I bring this up here because it is a perfect illustration of the dishonorable dishonesty throughout President Obama’s 2013 budget released on Monday, and what the President says and has said to the American people about his budget policies.
President Obama’s Grecian Formula
President Obama promised when he was running for office in 2008 that he would cut the budget deficit in half by the end of his first term. But the budget deficit projected for 2012 in the budget he just released is $1.327 trillion. The deficit in 2008 was $458.6 billion, less than half one trillion, the former all time record. As the Wall Street Journal explained yesterday, Obama’s new budget includes: “Another deficit of $1.327 trillion in 2012, also an increase from 2011, and making four years in a row above $1.29 trillion. The last time that happened? Never.”
Those four consecutive years of trillion dollar deficits under President Obama, the only trillion dollar deficits in world history, added a total of $5.33 trillion to the national debt held by the public in President Obama’s one term in office alone. Obama’s own budget projects the national debt held by the public to total $11.6 trillion for 2012, double the national debt of $5.8 trillion in 2008! Consequently, by Election Day 2012, Obama will have doubled the national debt, in just one term of office. In that one term, he added as much to the national debt as all prior Presidents, from George Washington to George Bush, combined!
But that is just the warm up if the voters are stupid enough to extend the lease on the White House for the Marxist infiltrator on Election Day. By 2022, Obama’s own budget projects that national debt held by the public to total nearly $20 trillion! That would be the highest national debt in world history. The gross federal debt, which includes the money the taxpayers owe in the Social Security trust fund and similar federal debts, is projected in Obama’s own budget to total nearly $26 trillion by 2022! That is projected to be just over 100 percent of GDP that year.
When President Obama was asking for our votes in 2008, he told us his budget policy would involve a “net spending cut.” In fact, he said precisely that during a nationally televised presidential debate with John McCain. In 2008, federal spending totaled $2.983 trillion. But federal spending for 2012 in the budget the President just released on Monday is projected to total $3.795 trillion, an increase of over 27 percent during his first term alone, up another $193 billion from the last year. In the budget the President released on Monday, spending was projected to soar by 2022 to $5.820 trillion, the highest spending in world history. Over the next 10 years, federal spending, with all of President Obama’s blather about spending cuts, will total $47 trillion… under the President’s own budget!
Does President Obama understand the meaning of the words “net spending cut?” Or was he deceiving the American people in 2008 when he used those words?
Jack Sparrow for Treasury Secretary
Even this Pacific Ocean of red ink is based on the assumption of exploding tax increases over the next 10 years. The budget assumes that federal income tax revenues will double by 2020, federal corporate tax revenues will double by 2017, and federal payroll taxes will double by 2022.
That is because already enacted under current law for 2013 are increases in the top tax rates for virtually every major federal tax. In that year, the tax increases of Obamacare go into effect, and the Bush tax cuts expire, which Obama refuses to renew for the nation’s small businesses, job creators, and investors. That is the English translation of individuals making over $200,000 a year, and couples making over $250,000 per year.
As a result, with the Bush tax cuts simply expiring, the top two income tax rates will go up by nearly 20 percent, the capital gains tax rate will soar by nearly 60 percent, the tax on dividends will nearly triple, the death tax rate will rise by nearly a third, and the Medicare payroll tax will explode by 62 percent for these targeted taxpayers.
Obama says in his budget message that these tax increases are necessary because “everyone must shoulder their fair share,” and “we need an economy where everyone shoulders their fair share to put our fiscal house in order.” The taxpayers targeted for these tax increases are the top 3 percent of income earners. But as the Wall Street Journal noted yesterday, those top 3 percent pay more in federal income taxes than the bottom 97 percent combined! So if that is not their fair share, what would that fair share be, Comrade Obama?
Before President Obama was even elected, in fact, in 2007, official IRS data shows that the top 1 percent of income earners paid 40.4 percent of all federal income taxes, almost twice their share of income. That was already more than paid by the bottom 95 percent combined. The top 5 percent of income earners paid 60 percent of all federal income taxes. The top 10 percent paid 70 percent.
By contrast, the bottom 40 percent of income earners as a group paid no federal income taxes. Instead, they received net payments from the income tax system equal to 3.8 percent of all federal income taxes. In other words, they paid negative 3.8 percent of federal income taxes. The middle 20 percent of income earners, the actual middle class, paid 4.7 percent of all federal income taxes.
This was after more than 25 years of supply-side Reaganomics cutting tax rates! The share of federal income taxes paid by the top 1 percent was 17.6 percent in 1981, when President Reagan brought his supply side economics to Washington. After a quarter century of rate cuts, that share had more than doubled by 2007, as indicated above. 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 while increasing their reported incomes. That is why Jack Kemp always used to say if you want to soak the rich, cut tax rates.
But President Obama continued with his disgraceful, dishonorable, calculated deception regarding who bears the burden of our income tax system, saying in his budget message, “a teacher, a nurse, or a construction worker who earns $50,000 a year should not pay taxes at a higher rate than someone making $50 million. It is wrong for Warren Buffett’s secretary to pay a higher tax rate than Warren Buffett.” Agreed, it would be wrong if it were true. That is why conservative Republicans propose a flat tax, where everyone pays the same rate, and “everyone plays by the same rules,” to use the President’s words. But it is President Obama and his fellow left-wing extremist, Che Guevara Democrats who oppose that most fair, and pro-growth of all tax systems, which would maximize jobs, wages and incomes for working people.
President Obama is playing you with the most dishonest Big Lie in American political history with this central campaign theme that the rich don’t pay their fair share of income taxes, and the middle class and working people are left to pay all of them instead. The truth is more nearly the opposite, with the rich paying nearly all of the income taxes.
The foundation of this calculated deception is the multiple taxation of capital in our tax system. The earnings from capital investment are taxed not once, but multiple times. First, by the corporate income tax, then again by the individual income tax through the tax on dividends, then if you sell the capital investment, through the capital gains tax, then when you die, by the death tax. Consequently, the 15 percent capital gains tax rate is not the only tax that Warren Buffett actually effectively pays on his investment income. This is how the rich end up paying such a large share of the income tax burden.
But Obama figures that enough of you and your friends and neighbors won’t know that, and the Democrat-controlled media won’t tell them. So he figures he can get away with looting the rich, as his Marxist ideology demands.
No Relief in Sight Under Obama
All of these Obama tax rate increases are on top of virtually the highest corporate tax rate in the industrialized world, at nearly 40 percent counting state income taxes, which leaves American companies uncompetitive in the global economy. Even Communist China maintains a 25 percent corporate rate. In the predominantly socialist EU, the average corporate rate is even lower. In formerly socialist Canada, the corporate rate today is 16.5 percent, falling to 15 percent next year.
Yet under Obama not only is there no relief in sight, but his budget includes still further tax increases, which are also already included in the projections of deficits and debt. He proposes the so-called Buffett rule involving a 30 percent minimum tax rate for upper income earners, which would increase the capital gains tax rate by 100 percent. He proposes to restrict deductions further for higher income earners. He proposes further tax increases on banks, oil, and gas, and still other tax increases on business.
If President Obama’s extremist left-wing rhetoric is not corrected, and he sells the nation his phony picture of reality, it is working people and the middle class that will suffer the most. That is because if we try to shift even more of the tax burden onto the nation’s job creators and investors, it is working people and the middle class that will lose jobs, wages, and incomes. That is why America is suffering a capital strike, with no real, long overdue recovery, extended unemployment to rival the Depression, declining real wages and incomes, and more Americans in poverty than at any time in American history.
In fact, if President Obama’s comprehensive tax rate increases are not averted, the result will be revenues falling far short of projections, or even declining further, and deficits and debt increasing even more, rather than declining as Obama wrongly projects. For over 40 years now, and possibly more, every time the capital gains tax rate has been increased, revenues have declined. Every time it has been cut, revenues have increased.
When former House Speaker Newt Gingrich led a capital gains tax rate cut in 1997 from 28 percent to 20 percent, the Joint Tax Committee (JTC) estimated that revenues would increase by $7.8 billion from 1997 to 1999, but decline by $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, for the Bush cut in the capital gains rate 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. Revenues from the taxation of dividends also rose after Bush slashed that rate in 2003 as well.
If Obama now reverses those rate cuts, the result will also be the opposite, with revenues declining rather than rising. In fact, if Obama’s comprehensive rate increases for 2013 produce a second, double dip recession in 2013, as I predict in my recent publication Obama and the Crash of 2013, published by Encounter Books, federal revenues across the board will decline, and deficits and debt will soar further. As the Wall Street Journal said yesterday, “A central contradiction of this [budget] plan is that the White House predicts accelerating real GDP growth of 3 percent in 2013 and 4.1 percent by 2015 even as the economy is whacked by these tax increases.” Good luck with that.
Yet, in his ideologically extremist budget message on Monday, the President tries to tell us that higher federal spending financed by higher taxes is what will produce economic recovery, growth, and prosperity. If you believe that, you are part of the problem rather than part of the solution. If you don’t believe that, then your top priority this year needs to be to remove the President from office.
The Decline and Fall of America
Finally, the above-discussed levels of federal spending, deficits, and debt include sharp reductions in future federal defense spending. There are sharp savings from withdrawing troops from Iraq and Afghanistan. The President cuts missile defense, and fails to modernize our aging, outdated nuclear deterrent, while our top rivals China and Russia do. The U.S. Navy is cut back to the levels before World War I. Troops, ships, and planes are reduced, and modernizations are put on the shelf.
Yet, even with these draconian defense reductions, America still suffers the above-discussed continued explosion of federal spending, deficits and debt. The President not only fails to propose any serious entitlement reform, he scorns serious reform proposals, while our national defenses are threatened. The President’s new defense strategy drops the longstanding American defense doctrine of maintaining the ability to fight two major conflicts, or two and half, at the same time. We are now only to maintain the forces to fight one major conflict. That means as soon as we are drawn into any such conflict, we are vulnerable to attack from another enemy, in fact inviting it. While Reagan gave us peace through strength, Obama is on the road to war through weakness.