We’re hearing a lot lately about solving our nation’s fiscal problems by ‘taxing the rich.’ It sounds good, but the facts just don’t agree with the talking points.
Breitbart.com posted an article yesterday that crunched some of the numbers involved.
“The president’s plan to increase taxes on the upper two percent covers the spending by this federal government not for eight years, not for eight months, not for eight weeks but for eight days. Eight days only,” said Mr. Price (Rep. Tom Price (R-GA)). “It’s not a real solution. So, again, I’m puzzled by an administration that seems to be more interested in raising tax rates than in gaining economic vitality.”
So what is going on?
The article cites a comment by Warren Buffett that may explain things:
Indeed, even Mr. Buffett seems to concede that he and the president’s “soak the rich” proposals are more an act of political theater designed to generate an emotional response than serious solutions: Mr. Buffett told Matt Lauer he believes his proposal would boost the “morale of the middle class.”
This is not about fiscal responsibility. This is called class warfare, and unfortunately, a lot of Americans have bought into the idea that punishing success is better than formulating policies that will help more people achieve success.
There is one important thing to remember as we approach the fiscal cliff. The Republicans control only one-half of one branch of government. Whatever happens, if it is not successful, the media will blame the Republicans. The Republicans might as well stick to their guns about not raising taxes and at least get blamed for something they did right. The idea of raising taxes now and dealing with spending cuts later is laughable. The Democrats have made that promise before, and the spending cuts never happened.
The problem is on both sides of the aisle–bigger government means more power concentrated in Washington. Congressmen like power. Until we elect people who put the welfare of the country before their own personal ambitions, nothing will change.
Susan Estrich is one of my favorite liberals. Although I probably disagree with her on most things, there are times when she hits the nail on the head squarely. Her recent article at Creators.com was one of those times.
The article was entitled, “The Mandate To Raise Taxes on the “Rich.””
Come again? This was a two-and-a-half-point election. It reflected a painfully divided electorate. The only mandate I saw was to unite a divided country.
Ms. Estrich explains that she voted for Obama and lists many of the reasons for her vote. She clearly states that she does not think she is paying too little in taxes in spite of the fact that she falls into the group of people President Obama describes as “rich.”
She points out:
I am all for closing loopholes. I am all for ending deductions for things I don’t even understand. But I am not for putting a low cap on deductions that would make it all but impossible for the charities I support to raise funds. I am not for putting a limit on the mortgage deduction that would mean, as a practical matter, that “middle class” (not rich) people in California would be priced out of the housing market, and the charities I support would not be able to raise what they need to survive.
That makes total sense. Ms. Estrich, would you please run for office.
For some reason Democrats (even rich Democrats) seem to have the idea that somehow we will all be happier if we punish people who have been successful in business in America. I totally do not understand how Kennedy’s, Pelosi’s, and Kerry’s and other wealthy Democrats want to raise taxes (unless of course you take into account that because of tax shelters, they may not be impacted very much by tax increases). The thing we need to remember is that raising taxes on the ‘rich’ really does not have a big impact on the budget deficit–somehow when taxes are raised on the ‘rich’ the middle class always gets hurt.
Yesterday’s Wall Street Journal posted an article on the Democrat’s latest temper tantrum.
The article reports:
That was the chest-pounding message Monday from Patty Murray, the Washington Democrat who runs her party’s Senate campaign committee. In a speech at the Brookings Institution, she declared that if Republicans won’t raise taxes on income above $250,000 before November, Democrats will gladly let all of the Bush tax rates expire at the end of the year—even on the middle class, and no matter the economic consequences.
“If we can’t get a good deal—a balanced deal that calls on the wealthy to pay their fair share—then I will absolutely continue this debate into 2013 rather than lock in a long-term deal this year that throws middle-class families under the bus,” Mrs. Murray said, in what sounded like an ultimatum.
That bit about throwing middle-class taxpayers “under the bus” is political spin, because Republicans say they’re ready to vote to extend for another year the current tax rates on all taxpayers, including everyone who makes less than $250,000. The Murray Democrats are the ones holding the middle-class rates hostage to a GOP vote to raise taxes on the affluent.
If I hear ‘tax breaks for the rich’ one more time, I may scream. First of all, in many states (New York and California to name two), $250,000 a year is middle class. Second of all, many small business owners file their taxes in a way that the gross income of the company (before expenses) shows as their personal income. They would be severely impacted by raising taxes on those making $250,000 a year. These are the people who create jobs. Just for the record, my husband and I do not make more than $250,000 a year, nor are we in danger of doing so. I just think class warfare is wrong.
The article concludes:
Perhaps Senator Murray and her fellow Democrats really don’t think tax increases will hurt all that much, and it’s clear she’s clueless about the way expectations influence economic decisions. But at least voters now know that Democrats are willing to toy with recession to win an election.
The “Bush Tax Cuts” have been in effect for at least ten years. When are they going to stop being the “Bush Tax Cuts” and simply become the current tax rate?
Maryland Governor Martin O’Malley pushed through a millionaires tax that went into effect in 2007 and expired in 2010. Yesterday CNBC reported that during that time Maryland lost approximately $1.7 billion in lost tax revenues. The tax imposed a rate of 6.25 percent on incomes of more than $1 million a year. Approximately 31,000 residents left the state during the time the tax was in effect.
Obviously, there is no proof that the people who left the state left because of the additional tax, but if you look at population growth in various states, you find that statistically, states with the lowest tax rates are growing and states with the highest taxes are losing population (e.g. Californians are migrating to Texas). On December 19 of last year, I posted an article (rightwinggranny.com) about the migration of people from states with high taxes to states with low taxes.
The December article at rightwinggranny stated:
There are also some interesting statistics on what happened in Maryland after the state passed a millionaires’ tax in 2008–there was a 33 percent decline in tax returns from millionaire households. The article also reports that Maryland lost $1 billion of its net tax base in 2008 because of out-migration.
There is a point at which raising taxes is counterproductive. President Obama’s statement yesterday that he would keep the tax breaks for people making under $250,000 a year was interesting for a number of reasons. First, it contradicts his previous statement that it is unwise to raise taxes during a recession (technically we are no longer in a recession, but we currently have a very weak economy). Secondly, it changes the subject–instead of looking at the impact President Obama’s policies have had on the economy, this debate will stir up class envy and paint the Republicans as the party of the rich. This is getting old.
Raising taxes in a weak economy is economic suicide. The Obama Administration knows that and knows that the President will not win this debate, but as long as we are talking about raising taxes, we are not talking about the President’s record on the economy.
A blog called Political Math Blog posted the following graph:
So why all the fuss? Because people who are not paying attention might believe that taxing the rich would actually accomplish something! Actually, raising taxes on the rich will slow down the economy and make it harder for the rest of us to make ends meet.
Yesterday John Hinderaker at Power Line posted a story on the Democrats’ recent efforts to pay for a continuation of the payroll tax by imposing a tax on the rich. (Actually, the Democrats solution to any given problem at any given time is to impose a tax on the rich). Anyway, a Power Line reader ran the numbers to see how much impact the proposed tax on the rich would have. This is what the reader found:
The taxes on the highest incomes are never enough for any of their schemes. The Dems’ proposal is a fraud, which the MSM helps to perpetrate by never estimating the revenues from upper income tax increases.
Politico reports that the cost of the Democrats’ payroll tax reduction is $265 billion. Will that really be paid for by a 3.25 percent surtax on adjusted gross incomes over $1 million?
According to the Tax Policy Center at the Urban Institute/Brookings Institute, approximately 388,000 households have income above $1 million in any given year; the average income of such households is about $2.7 million. The surtax would be levied on the increment above $1 million. So the arithmetic is simple on a static analysis: 388,000 * $1.7 million * 3.25% = $21.437 billion.
So the “millionaires and billionaires” surtax doesn’t come even remotely close to the reduction in payroll tax. It’s a complete fraud–gratuitous class warfare for revenues that, in the overall scheme of things, are trivial.
The problem with the budget is not the lack of tax revenue–it is the increase in spending. The Obama administration has increased government spending to approximately 24 percent of the gross domestic product (GDP). It had previously been between 18 and 20 percent. The average tax revenue collected by the government in a year is about 18 percent of the GDP. Therein lies the problem. Even when taxes on the rich are increased, the amount collected hovers around 18 percent because the ‘rich’ have accountants that help them pay as little taxes as possible. When you tax the rich you only wind up taxing the middle class more and moving closer to the elimination of the middle class. That is not a good idea.
On Tuesday there was an editorial in the Wall Street Journal about Warren Buffett and his taxes. I am not linking to the article because it is a subscribers only article.
The editorial staff of the Wall Street Journal points out that despite the fact that he is a strong cheerleader for increasing taxes on the wealthy, Warren Buffett does not practice what he preaches. Recently Mr. Buffett invested in Bank of America. Under normal circumstances, Berkshire Hathaway pays a top federal income tax rate of 35 percent. However, corporations can exclude 70 percent of the dividends they receive from an investment in another corporation. Because of that law, Berkshire will pay a tax rate of 10.5 percent on the $300 million in dividends it will receive each year from Bank of America. The shareholders in Berkshire Hathaway may appreciate this, as well they should, but it really doesn’t sound like the actions of someone who believes that the rich should pay more taxes. Maybe Mr. Buffett thinks that the ‘other’ rich should pay more taxes.