Wednesday, July 11, 2012
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.
Why not?
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.
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