Good morning, suckers: President Obama is playing you.
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On the basis of his abusively misleading rhetoric, President Obama in his campaign speech on Monday called for $1.5 trillion in increased taxes. That would be on top of all the tax increases for which Obama has already won enactment under current law for 2013. In that year, the tax increases of Obamacare become effective, and the Bush tax cuts, which President Obama has refused to renew for the nation’s small businesses, job creators, and investors, expire.
As a result, the top two income tax rates will go up by nearly 20 percent. The capital gains tax would soar by nearly 60 percent. The tax on dividends would nearly triple. The Medicare payroll tax would rocket up by 62 percent for these disfavored taxpayers. That is before the new tax increases our Dear Leader called for on Monday.
Those Tax Increases Are Not Paid For
President Obama said in his campaign speech on Monday that Congress should pass his jobs plan “knowing that every proposal is fully paid for.” They are paid for by his tax increases on “the rich,” which he says will raise $1 trillion, 573 billion over 10 years. But those tax increases don’t have a prayer of raising nearly that much.
Obama and Buffett are blowing smoke over the 15 percent rate on capital gains and on dividends adopted in the Bush years. But over the last 40 years, every time the capital gains tax rate has been cut, revenue has gone up. And every time the capital gains tax rate has been raised, revenue has gone down.
In 1968, a 25 percent capital gains tax rate yielded real capital gains tax revenues of $40.6 billion calculated in 2000 dollars. The capital gains tax rate was then raised four times in the next eight years to 35 percent. By 1975, at the higher rate, capital gains revenues totaled $19.6 billion in constant 2000 dollars, less than half as much.
In 1978, the capital gains tax rate of 35 percent raised $29.9 billion in 2000 dollars. The capital gains rate was then cut three times to 20 percent over the four years. By 1986, the new rate 43 percent lower than the 1978 rate raised $92.9 billion in 2000 dollars, about three times as much.
The capital gains rate was raised by 40 percent the next year, to 28 percent. Capital gains revenues fell to $56.2 billion that year, and declined all the way to $34.6 billion by 1991.
The reason for this is that when the capital gains rate was cut, more taxpayers sold their capital and realized their gains, and a rising stock market produced more gains. When the rate was increased, more taxpayers held on to their capital and a declining stock market cut off the gains.
You might say that the estimate Obama gives for his tax increase just reflects the official scoring of the proposal from the Congressional Budget Office and Joint Tax Committee. But in 1997, Congress was considering a cut in the capital gains rate from 28 percent back down to 20 percent. The Joint Tax Committee (JTC) estimated that as a result revenues would increase by $7.8 billion from 1997 to 1999, but the tax cut would produce a loss of $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, Congress considered cutting the capital gains rate again 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. As Dan Clifton of the American Shareholders Association said, “There is no excuse for this $138 billion error.” Capital gains tax revenue doubled from 2003 to 2005 despite a 25 percent cut in the tax rate.
Similarly, when the tax rate on dividends was cut to 15 percent in 2003, dividends paid soared, and so did the resulting revenue.
So if we effectively raise these rates again under President Obama’s tax piracy proposals, revenues will most likely decline rather than rise. If those tax increases push the economy back into recession, federal revenues will decline across the board, and the national debt will soar further.
Moreover, there is further miscalculation in Obama’s proposals. He claims $2 in spending cuts for every $1 in tax increases. But most of his spending cuts involve $1.84 trillion in supposed savings due to the withdrawals from Iraq and Afghanistan over the next 10 years that have long been expected. President Bush signed a peace treaty with Iraq providing for withdrawals in 2008.
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