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The Obama Watch
Wrong Medicine for a Sick Economy
Straighforwardness has never been more out of control.
“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” repeatedly proclaims President Obama, arguing for his proposed $1.5 trillion tax increase over the next 10 years. “That’s pretty straightforward. It’s hard to argue against that.”
In fact, Mr. Obama’s statement is anything but straightforward and not hard to argue against.
Seeking to reverse his declining poll numbers, especially among his increasingly disillusioned base, Obama is attempting to give the impression that America’s millionaires and billionaires are paying lower taxes than their secretaries.
IRS data for 2008, however, the latest year for which the numbers are available, show that those who earned more than $1 million in adjusted gross income paid an average federal income tax rate of 23.3 percent.
For those earning $100,000 to $200,000 in 2008, the average federal income tax rate paid was just about half as much, 12.7 percent. For those with adjusted gross incomes from $30,000 to $50,000 — a millionaire’s secretary, for instance — the average federal income tax rate paid was 7.2 percent, less than a third of the rate paid by those earning $1 million and over.
Obama is echoing a recent column in the New York Times by billionaire Warren Buffett in which Buffett wrote that the federal income tax rate he paid was lower than the rate paid by employees in his office.
“Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett,” Obama responded. “There is no justification for it. It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million.”
Again, the Buffett analysis is less than straightforward. For those in the top income brackets, a disproportionate share of income is from dividends, capital gains and other investments — income that is taxed at 15 percent. IRS data show that taxpayers with more than $1 million in yearly income get only 33 percent of their income from wages and salaries.
An honest portrayal would acknowledge that dividends and capital gains are doubled taxed, first as corporate profits at the highest corporate income tax rate in the industrialized world, 35 percent, and then again as individual income when dividends are distributed or stock is sold.
The total tax rate on capital gains is “closer to 45 percent than 15 percent,” stated a Wall Street Journal editorial on September 20.
In fact, the tax hit on capital gains is higher than the Journal states because capital gains are not indexed for inflation, producing taxes that are levied on illusory gains. The stock seller is taxed not only on real gains in purchasing power, but also on phantom gains attributable to inflation.
On the overall tax burden, Obama is arguing that the rich should start paying their “fair share.” He doesn’t mention that the latest IRS data, for 2008, show the top 1 percent of U.S. income earners paying 38 percent of all federal income taxes, the top 10 percent paying 70 percent, and the top half of income earners paying 97 percent of total federal income taxes.
Also unacknowledged by this White House is how President Kennedy’s cut in the top marginal income tax rate produced an immediate increase in federal revenues, or how President Reagan’s cut in the top marginal income tax rate was followed by a drop in the unemployment rate in the 1980s from 9.7 percent to 5.3 percent.
President Obama’s prescription for revenue growth and job growth moves in exactly the opposite direction.
About the Author
Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise and an associate professor of economics at Robert Morris University in Pittsburgh.
Letter to the Editor View all comments (27) | Leave a comment
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Brian Mc| 9.27.11 @ 8:26AM
Again, it's the mindset that everybody deserves to know what everyone else makes so that the mooch-mob can storm the gates and demand more of what we make. The only way to stop it is banishment in the most prejudicial manner of the IRS. It's not revenue. It's outright theft under the guise of fairness. Government seizure gives the libs their voting base in droves. Elimination of this sin would halt the madness and bring stability back to this Republic. But alas, I believe it is too late for that now.
arlo price| 9.27.11 @ 9:53AM
The obamagedon PIMP thugocracy chugs along........
# 10 Thou shalt not covet thy neighbors goods
Let's Roll
hardcard| 9.27.11 @ 8:45AM
the only growth obamasoros wants is the size of the federal government. Wake up!! Read Mark Steyns, "After America"
Timothy L. Pennell| 9.27.11 @ 8:54AM
Warren Buffett is a Useful Idiot, and a LIAR. He likes to talk, but, Talk is Cheap. He should take out his Checkbook, and write a check for ALL of his Wealth, except for what he truly needs. He's already said that he would leave his Kids, NOTHING. (What a great guy) So, what the hell. Time to Walk the Walk.
If he's not gonna do that? Maybe he can fork over the TRILLION, that his Company - Berkshire Hathaway - OWES in Taxes, since 2002?
Please explain how a Man who has made MORE MONEY than ANYONE, because of the best Economic Engine that the world has ever known (CAPITALISM) have his nose so far up this Marxist's *SS?
Timothy L. Pennell| 9.27.11 @ 8:56AM
I hate when this happens. It's so Alan Brooksish.
Berkshire Hathaway owes a BILLION, in back taxes.
OBAMA is the "Trillion" guy.
Dan Hirsch| 9.27.11 @ 11:51AM
TLP,
Take a breath, my brother.
Warren's quibbling with the IRS over a billion, not a TRILLION.
And if you want them to "take" Warren Buffet's money, then, well citizen aren't you agreeing to toss all of yours in, too?
If, as you suggest, he has far more than he needs,so it's okay to take the rest is nothing but bloody, bloody socialism.
Is that where you want to go?
DTOM
Margie| 9.27.11 @ 1:59PM
That's not what he was saying, dummy.
You're so ready to pounce.
Don't you get it?
He's saying that if Buffet is in agreement with Socialism, let him put his own money where his mouth is, and open up his own checkbook to the world. Or at least pay his own taxes.
Timothy L. Pennell| 9.27.11 @ 4:33PM
Thank You, Margie.
Dan Hirsch? I don't know what his deal is.
Dan Hirsch| 9.27.11 @ 6:59PM
TLP,
I thought that you were adding to the class warfare that Obama is hoping to destroy our capitalist system with.
That's my deal. I may have come across a little strong, but so few people appreciate the core, underlying principles of our governmental system: personal property and personal sovereignty, that I often push back when they seem to be overlooked, maybe a little too hard.
What eluded me in your post was that you were suggesting that WB write a check of his own volition - in which case, I was really off base. Please accept my heartfelt apology.
Didn't you once respond to me that I needed better glasses? Dang, I hate it when they make your vision all blurry with those drops. But I guess, maybe, you had a good point.
Peace through strength!
DH
As to you Margie:
I predict two things.
1. You will call me a liar, a sinner, an apostate, Satan on the hoof, and such very, very soon.
2. And you will never respond to my question from the other day asking you to offer Biblical citations of Jesus Christ calling people 'liar', condemning them to hell, and repeating those things to others.
Margie, you regularly fail to exhibit any Christlike behavior, yet you run around spitting at any one who does not hold to your exact notions of Christian faith. (God help anyone associated with the Catholic Church within your range! Margie, you know what? He has, He does, and He will, no matter what you say...)
I know that if you ever say something nice about me, I obviously have joined the ranks of those who use Scripture as the Pharisees did, to try to trip people up and embarrass them, in an effort to maintain your power and authority here on earth.
Good luck with that.
Do you really believe that beating people with Scripture snippets rather than foul words and sticks makes you Christlike? It does not.
I pray for you and pray for forgiveness for myself, because I know that I am here driving you to even further sinful excursions of hatred and spite.
May God have mercy on us all!
In Jesus's name.
DH
W| 9.27.11 @ 8:26PM
Dan,
As long as we have a progressive income tax law with different rates for levels of income, we will always have the arguments of how much income do you need, and are you paying your fair share.
This gives a lot of power to the legislators who decide the rates, the deductions, and the credits.
A flat income tax or a consumption tax is more fair,and more importantly would reduce the power of government.
Margie| 9.28.11 @ 12:37AM
You continue to be insincere, therefore you can stuff it.
Quit Treading on me, PUNK!
Bob K.| 9.27.11 @ 9:26AM
Professor Reiland,
It is impossible to be "straight forward" and "give an honest portrayal" with the tax code as it is now structured. It wasn't written for the people. It was written by bureaucrats, for bureaucrats to protect their jobs first.
They also throw bones to the Accounting and Legal Industries to make them happy and to supply work and careers for them in the Federal government with fat pensions at the end of their employment.
We now have an enormously inflated and parasitic federal bureaucracy being paid in inflated currency which is in danger of killing it's host and we have a political class; elected officials and many pundits, some of whom write for this publication (not yourself) who are too stupid to realize it.
Cutting the tax rate alone will not solve this problem. Our nation has to throw 1/2 it's bureaucracy out in the streets to fend for itself first. And there isn't much chance of that when we elect people like Nancy Pelosi who said about Obama's Health Care Bill that "we had to pass it first to see what was in it."
Dan Hirsch| 9.27.11 @ 11:56AM
Bob K;
A fine point for you here: Lawyers regulate lawyers, accountants regulate accountants, tax attorneys regulate tax attorneys...The regulations are not just 'bones' thrown to these parasitic professions, they are the whole danged hog that these parasites have taken from the people and companies forced into their clutches by hopelessly arcane, flexible, byzantine laws and regulations.
professions (Yes, dammit, parasitic! How much of the value of your car is in the speedometer, compared to say the engine?)
Dan Hirsch| 9.27.11 @ 12:00PM
Big OOP's over here.
I hit "submit" instead of preview.
Please disregard the last ersatz paragraph and append this to my post.
When thieves police the thieves, things seem peaceful enough, but a lot of your stuff seems to disappear...
Ever notice of the professions that the engineers seem to be the lowest paid? I hold that it's because, try as they might, they cannot legislate the laws of physics...
DTOM
Bob K.| 9.27.11 @ 2:54PM
Better than a fine point. An excellent point!
David W| 9.27.11 @ 9:32AM
"An honest portrayal would acknowledge..." is the key. There has yet to be an honest portrayal from this Administration.
Maybe someone can ask a democratic candidate which is greater - 10% of $10,000 or 9% of $1,000,000 (for you math challenged 9% of $1,000,000 is much greater). It's not the tax rate but the absolute amount of taxes being paid. But Obama and the democrats know that. I don't ever remember the democrats going after the "tax rate" as the problem. They know the rich pay more, but they have no logic to use to attack that. Thus they go after the specious "tax rate" issue.
Shamus| 9.27.11 @ 10:08AM
Obama and Buffett are being dishonest.
The US tax code is more progressive than virtually any other country on earth. But it is convoluted, and this gives Buffett room for his deceit.
Capital gains currently are taxed at a 15% rate. However, they have already been taxed at a 35% corporate if they come from sales of stock. No provision is made for inflationary gains. And it's often not possible to deduct capital losses from income. A proper analysis would show very high tax rates on capital gains. Buffett is familiar with inflation, so his failure to account for it in his analysis is extremely dishonest.
WillyP | 9.27.11 @ 11:04AM
It is very simple. Tax, to the rich is an option. Paying taxes competes with paying for tax shelters. When taxes are raised, tax shelters become (relatively) cheaper. So the rich folk spend the money on avoiding taxes, instead of paying taxes.
So, in that sense the IRS needs to be competitive with business like Warren Buffet's, that provide a service that directly competes for the same money as the IRS.
JP| 9.27.11 @ 11:42AM
I am still amazed how many passes the MSM gives the Wizard from Omaha. Buffet draws exactly a $100,000 salary, paid out by his holding company, Berkshire Hathaway. All other income (namely capital gains and some dividends) go straight into the Bill Gates Trust Fund. Yet, even those sheltered capital gains have already been taxed at least once (in the form of the Corporate Tax). Depending how the capital gains are realized, this second source of income (which was already taxed once) will pay out 15%. In short, Buffet's income is paying out between 30-35% in taxes before going into Buffet's tax shelter.
Even the Washington Post caught on the Buffet's misleading Op-Ed. Warren Buffet may be a shrewd stock trader, but at heart he is nothing but another Progressive.
Dan Hirsch| 9.27.11 @ 12:03PM
Ever wonder what Bill, Warren and the rest of them are up to with all their cash?
Haven't they said it's 'for the children?'
The road to hell is paved with good intentions...
DTOM
P.S.
Where is George Soros while all this goes on? DH
Redstateboy| 9.27.11 @ 12:35PM
Hussein is preaching to the base.. the great unwashed, guilable, dependent, greedy, envious stooges that is the base of today's Democrat Party.
Thank God for the Tea Party's message.. That this Nation was not founded as a "Collective Commune."
Anthony| 9.27.11 @ 4:07PM
Both Obozo and Buffett are pathological liars. They are class envy instigator leftists, which explain their propensity for lies.
If Buffett truly belives what he says, he can pay the taxes owed by Bershire Hathaway and pay the tax rate of ordinary income instead of the 15% from his dividends.
Buffett is a FRAUD!!!
john dubose| 9.27.11 @ 4:11PM
Something missing from the "tax the rich" idea:
Because make adjustments over time, it does not matter as much a most liberals think who gets the tax bill. If you tax the owners of companies
( most rich people are such ), they simply jack up prices to get the money to pay them. If you tax the income of poorer workers, the corporations have to pay them more so they can pay their taxes. Who gets a tax increase does matter in the short term. But after a while it balances.
What really counts is tuning the overall tax rate to get the needed revenue without impacting business too much. The "Laffer curve" is common sense and absolutely valid.
In the present environment where total taxes from all levels of gov are about 35-40%, we can not be far from the peak of revenue generation.
We have to cut spending or else crush the private economy. That means hard choices and politicians with guts. It is up to us to elect them.
Pat| 9.27.11 @ 6:33PM
The truly strange part is that millionaire Obama never boasts that he, himself, is a millionaire and pays more in taxes than the White House gardener does. Is he pretending to be just a barefoot Community Organizer from Chicago for the benefit of his Liberal supporters who may not realize he is rich or is he reticent about the fact he is wealthy in order to disarm us suspicious Conservatives? Buffet admits he is a billionaire so why can’t Obama admit he is a multi-millionaire? Why doesn’t Obama say: “Look, I’m rich and I will grow even wealthier as an ex-President and I want to pay more in income taxes to help the poor”? Is he afraid we won’t believe him or is he afraid we’ll ask embarrassing questions about how he became rich?
Liberals never ask why the rich must pay their “fair” share – they simply feel the need to raise everyone’s taxes in their bones. In fact, many wealthy Liberals refuse to admit they are rich – something about guilt combined with a leftover youthful idealism the psychologists tell us. We pass them in First Class on our way to coach, we sit behind their BMW 725I’s at the light and notice they take the freeway exit to their house in the Hamptons, but they’re not rich, merely comfortable. And many Liberals have grown even more “comfortable” since Obama’s Stimulus Plans have opened the federal money spigots.
Perhaps the millionaires tax is a guilt gift for Liberals, you got a lot from the government, so you should be enthusiastic about giving some back. Or maybe, if you appear eager to pay more in taxes, we won’t ask where you got that increased income – sorta the Liberals’ version of “Don’t Ask, Don’t Tell”.
POST American| 9.27.11 @ 10:32PM
---Great '90's Show' DIS-traction.
NOW, as the Globalist RED China TREASON OP
goes into its 4th decade, and as DEPOP OPs
become reality with FUKISHIMA fallout
saturating our skies ---could we drop the
Rock--F-L-O rectal bennies worship, and become
a journalist, and maybe even a fearless commntator?
Trailas | 9.28.11 @ 12:07AM
This is the wrong medicine for a sick economy. This bill could increase unemployment, slow economic growth and deepen already historic income inequality.
R. Kavanagh| 9.28.11 @ 8:35PM
The Obama guilt complex is sickening. He made his pile on bogus books that had all the signposts for his subsequent marxist trash talking (and actions) of his presidency. He is far worse than Carter, this is deliberate, all of it. This administration will lose in 2012 as the toothpaste is out of the tube and nothing can change that fact. Post-president Zero-bama will have lots to write about then.
"Shaft - My presidency in One Act"
"When I was King"
"Lies, Liars and Lying - Memoirs of Marxist"