Here’s a big surprise: President Obama wants to raise taxes on “the wealthy.”
By some counts, this represents the 25th time the president has rolled out this proposal — something to keep in mind the next time he warns against “refighting the battles of the past” over something like repealing Obamacare. Regardless, repetition hasn’t done anything to improve either the policy or the president’s truthfulness in describing it.
First, the president’s definition of wealthy is a little shaky. It turns out that the “millionaires” he refers to in his speeches are actually individuals earning $200,000 per year and couples earning $250,000 — about 2.5 million Americans. While $250,000 is a lot of money in many areas of the country, in high‐cost regions such as New York City that earning category would include a teacher with 22 years of service married to a police captain. The president’s definition of “rich” would also include some 750,000 independent and small businesses that do not pay income taxes as businesses; instead, their taxes are paid through the owners’ individual tax returns. We are not exactly talking Warren Buffett here
Moreover, many Americans earning less than $200,000 are likely to suffer collateral damage from this tax increase. For example, the president’s proposed tax hike on capital gains is likely to reduce the value of 401(k) funds that millions of middle‐income Americans rely on for retirement. And the business taxes will drive up the prices of goods and services, not to mention costing jobs. Given current unemployment rates, it seems especially hard to think of any reason why raising taxes on small businesses would be a good policy.
All this would come, of course, on top of the Obamacare tax increases, which will start hitting in the next two years. A large part of those tax hikes will also fall directly or indirectly on the middle class.
The president’s argument that this tax hike is about fairness is also more than a bit specious. Wealthy Americans already pay a disproportionate share of federal income taxes. The top 1 percent earn 16 percent of all income in the United States, but pay 36.7 percent of all federal income taxes. In fact, the 400 richest Americans together pay nearly as much in federal income taxes as do the 50 percent of taxpayers at the low end of the scale.
The current tax code is already highly progressive. The wealthy pay a far higher effective tax rate. After all deductions and exemptions are included, the rich pay roughly 24 percent of their income in taxes, compared to 11 percent on average for all taxpayers. The rich, it would seem, already pay more than their “fair share.”
Of course, one might ask in general what is fair about taking wealth away from those who have earned it through their own industriousness and hard work and spreading it around to others who didn’t earn it.
Finally, the president is disingenuous in suggesting that revenue from the higher taxes would be used to bring down the deficit and balance the budget.
Balancing the budget isn’t rocket science. All that is required is for revenues to grow faster than spending. According to the Congressional Budget Office’s alternative budget scenario, revenues will grow over the next several years, as a result of such natural factors as population growth and a return to more normal levels of economic activity, from their current 15.8 percent of GDP to 18.5 percent of GDP by 2022 — even if the Bush tax cuts are extended in their entirety. Even without a tax hike, the government will have a lot more money.
In fact, it will have so much more money that it isn’t even necessary to cut spending in order to balance the budget. If spending were simply held constant in inflation‐adjusted terms, a growing economy would reduce federal spending to 18.3 percent of GDP by 2022. Thus, we could balance the budget with no tax increase whatsoever.
Yet President Obama is seeking an additional $3.9 trillion in new taxes over ten years, above the projected revenue growth discussed above, and these new taxes still wouldn’t balance the budget.
Because the president wants to increase spending even faster than he wants to increase taxes. President Obama’s proposed tax hike would raise roughly $65 billion in 2013. At the same time, the president proposes to increase spending next year by $202 billion. The tax hike would pay for only 32 percent of the proposed new spending. Or put it another way: Over ten years, the new taxes would cover roughly half of the $1.6 trillion in new subsidies and Medicaid spending under Obamacare.
That means that not a penny of Obama’s proposed tax increase would, in fact, go toward reducing the budget deficit, let alone paying down the debt. Rather, every cent of the tax hike would go toward paying for increased federal spending.
And it is that spending, and the bigger and more intrusive government it represents, that is the real burden on the economy and the American people. President Obama’s tax hike is just a symptom of the big‐government disease.
In short, the president’s plan amounts to nothing more than the same old tax‐and‐spend tune that we have heard so many times before. It is a plan that hasn’t improved with age.