President Barack Obama wants to correct government overspending by over-taxing. He is proposing a combination of cuts and tax increases, the latter accomplished by setting his sights on those earning $250,000 and up. We’ve heard Obama’s class warfare rhetoric before. That may be why the president deemed it necessary to deny the obvious, declaring, “This is not class warfare.”
Obama’s announcement had little of the conciliatory tone of his previous proposals that at least were couched as compromises. Unless Congress passes his tax increases, the president threatened to veto spending cuts. It was more of an appeal to his leftist base, grown uneasy with what some view as concessions to tax-averse Republicans.
Republicans vow no tax increases, so both sides appear entrenched. If agreement isn’t reached by Dec. 23 on cutting $1.2 trillion, automatic reductions kick in for defense and entitlement spending beginning in 2013. That’s an outcome we find appealing, if imperfect.
Obama’s proposal to reduce the national debt by $3 trillion over a decade, half with new taxes, is more likely a re-election strategy than a serious attempt at deficit reduction.
The effect of his new “minimum” tax on annual income in excess of $1 million, combined with proposals to allow the Bush tax cuts to expire in 2013 and to eliminate some business tax deductions would be more harmful than helpful. Targeted high-earners will shield income from taxes, the historic reaction to tax-the-rich schemes. Savings and investments will suffer as income is diverted to avoid higher rates on capital gains and dividends. Consequently, job creation and business expansion will slow even more than their already-turgid pace.
Yet, Obama’s populist appeal would have an even more detrimental effect. It would advance the redistributionist ideal that some taxpayers are more equal than others. About half the wage-earning public, those at the low-end of income, already pay no federal income tax. But in 2008, the top 10-percent income earners paid 70 percent of the tax. The progressive income tax is insidious by nature, punishing disproportionately those who earn more, consequently discouraging wealth creation.
When Obama complains that the capital gains and dividends tax rate was lowered to 15 percent during the Bush Administration compared to the top income tax rate of 35 percent, he lambastes it as unfair. It is not. The rate applies to everyone equally, irrespective of income level. What is unfair is double taxation when the same money is taxed first as corporate profit, then again as a capital gain or dividend for individual taxpayers.
To be fair, Obama should abolish double taxation, not heap on more.