The Tax Hike Election of 2012 - The American Spectator | USA News and Politics
The Tax Hike Election of 2012

Barack Obama was a very effective candidate for president in 2007 and 2008. He was not very good at actually being president. So it was understandable when about one year ago Obama quit trying to be president and once again focused on campaigning for president. He returned to his comfort zone.

It was one of the shorter presidencies. Not quite William Henry Harrison territory, but closer to a congressional term. His campaign for re-election will last longer than his 2009 and 2010 effort to fill the chair behind the Resolute desk.

The yearlong drama in 2011 over the debt ceiling increase, the 2012 State of the Union address, and the Obama administration’s “budgets” were not about governing. They were campaign slogans. Longer versions of “hope and change.”

Traditionally, politicians of the left have worked to focus the electorate on the benefits of more government spending, all while making every effort to hide the costs of that spending—higher taxes—by placing tax increases as far from voters’ minds and Election Day as possible. Many governors campaign promising not to raise taxes and then do just that early in their terms, so as to have the tax hike four years distant when re-election rolls around. This was President Clinton’s strategy when he raised taxes in 1993 and then spent the swag through the 1996 election.

It was always a pleasant fantasy for conservatives that, by moving Election Day to April 15 or tax day to the first Tuesday in November, they could force Americans to notice the actual costs of government over the siren song of “free” programs. Illinois congressman Phil Crane regularly introduced legislation to do just this.

Barack Obama appeared to be following the traditional strategy, separating the pain of taxes from the political joys of spending, when the Democrats passed Obamacare in March 2010. Most of the taxes to pay for it do not kick in until after the upcoming election.

It was Obama’s foul luck that Americans decided to hold their first negative referendum on government spending in 2010. Tea Party–reinforced Republican voters did not wait for the coming higher taxes to punish Obama, Reid, and Pelosi.

But the delayed Obamacare taxes are just one in a bevy of hikes on the horizon. Without congressional action, the 2001 and 2003 Bush-era tax cuts will expire at the end of the year, and the Alternative Minimum Tax “patch,” the research and development tax credit, and the second annual FICA tax holiday will all lapse. If Obama is re-elected, he can simply veto any Republican effort to extend these tax cuts, and on January 1, 2013, the marriage penalty returns, the capital gains tax jumps from 15 to 23.8 percent, the tax on dividends rises from 15 to 43.4 percent, the top individual tax rate increases from 35 to 43.4 percent (Clinton’s 39.6 percent plus the Obamacare tax of 3.8 percent), the Social Security payroll tax paid directly by workers jumps from 4.2 percent to 6.2 percent, and the death tax jumps from 35 percent to 55 percent on lifetime savings greater than $1 million (not today’s $10 million exemption). The end of the Alternative Minimum Tax patch means the tax, enacted in 1969 to punish 155 rich Americans, will instead hit 30 million families.

A re-elected Obama could raise taxes by $500 billion in 2013 and $5 trillion over the decade simply by vetoing Republican efforts to extend or make permanent today’s lower rates.

This makes the 2012 election about taxes: big time.

THE DEMOCRATIC PARTY—which swore it learned its lesson on taxes in 1978, when the tsunami of tax revolts began in California with Proposition 13; and then again when the unthinkable happened, and Ronald Reagan won the presidency in 1980 campaigning on supply-side tax-rate reduction; and then again in 1984, when Walter Mondale inexplicably lost the presidency after he announced at the party’s convention that he would raise taxes; and again when George Bush won in 1988 simply stating “No new taxes”; and again in 1994 when Clinton’s tax hikes brought the first Republican House and Senate since 1952; and again in 2000 when even George W. Bush, promising lower taxes, defeated candidate-for-life Al Gore—this same party has now convinced itself that focusing on taxation, specifically promising to raise taxes on the rich, is a vote-winning strategy.

Senator Charles Schumer (D-NY), who spent 2008 promising Wall Street that despite everything Obama said, Schumer would never really let the capital gains tax increase, has now announced his belief that, “The tax issue, for the first time in decades, has flipped so Democrats actually have the high ground.”

The Democrats just spent 2010 losing control of the House of Representatives, and losing six races for Senate, six for governor, and 711 for state legislator in reaction to their higher levels of government spending.

Scott Rasmussen, co-founder of ESPN and now president of Rasmussen Reports, has been polling these issues for 18 years and recently published The People’s Money, a book on how Americans view government spending and taxation. His data suggest the Democrats have chosen “unwisely.”

In April 2011, Rasmussen found that 64 percent of Americans believed the U.S. was “overtaxed.” Gallup and Harris polling from 1996 to 2006 asked Americans if their own federal tax payment was too high, about right, or too low. An average of more than 60 percent said “too high.” Usually just 1 or 2 percent said “too low,” though that figure spiked in 2004 to all of 3 percent.

Obama and the Democrats would have no more luck selling tax hikes to reduce the deficit or pay our creditors. Rasmussen found 71 percent of Americans were unwilling to pay higher taxes to help reduce the national debt. This might be because 62 percent of Americans believed Congress and the president would spend the additional revenue on new government programs rather than reducing the debt. Similarly, the Tax Foundation asked in 2006, when the debt was somewhat smaller, if Americans would be willing to pay the $2,470 required of each individual tax return to eliminate the then $340 billion deficit. Nine percent of tax filers said yes. Seventy-nine percent said no. Only 17 percent said they believed the government would use the money to close the deficit; 63 percent said the government would just increase its spending.

What about other reasons to raise taxes? A mileage tax to pay for highways pushed by Obama’s transportation secretary? Seventy-three percent said no. Faring worse was a Federal Trade Commission recommendation to save (subsidize) our nation’s newspapers by taxing cell phone bills (84 percent no), computers (76 percent no), or websites (74 percent no). Taxes on icky things? The Tax Foundation asked about plans to tax foods with salt (71 percent no), sugary drinks (59 percent no), and junk food (55 percent no).

Asked about Obama’s “Simpson-Bowles” deficit commission, only 30 percent believed any of the promised spending cuts would be realized, while fully 78 percent thought it likely Congress would impose the proposed tax hikes.

And with an upcoming election likely to focus on the economy and job creation, a June 2011 Rasmussen poll showed that most Americans continue to believe tax reductions help the economy. Only one in four thinks otherwise.

How about the mega-question of the size and scope of government? According to a March 2011 Rasmussen poll, 68 percent of Americans prefer a government with fewer services and lower taxes. Only 22 percent want more services and higher taxes. That this is one of the more consistent polling results strongly suggests Reagan Republicans should dominate the political landscape if the GOP ever finds a candidate who can articulate the vision as Reagan did.

So Americans believe lower taxes help the economy, higher taxes hurt the economy, and revenue from tax hikes will be spent on new programs rather debt reduction. They think they are too highly taxed, and they want to reduce the size of government rather than pay more taxes.

Obamacare Tax Hikes

  • Individual and Employer Mandates to Purchase Health Insurance
  • Medicare Payroll Tax Hike from 2.9 to 3.8 Percent
  • Investment “Surtax” of 3.8 Percent
  • “Cadillac Plan” Excise Tax on High-Cost Health Insurance
  • Limitations on Use of Health Savings Accounts (HSAs) and Flex Spending Accounts (FSAs)
  • “Medicine Cabinet Tax” on Purchase of Over-the-Counter Medicines
  • “Haircut” of Medical Itemized Deductions Allowed 
  • New Tanning Tax of 10 Percent 
  • Excise Tax on Medical Device Manufacturers 
  • Employer Reporting of Health Insurance on Employee W-2

WHAT ABOUT Obama’s bet that Americans will vote for envy and vote to raise taxes on the rich? The quintessential tax on rich people is the death tax, or estate tax. In 2008, the Tax Foundation asked, “Do you personally favor or oppose completely eliminating the estate tax—that is, the tax on property left by people who die?” Sixty-eight percent favored abolition, and only 19 percent opposed it. This level of support for ending a tax paid by perhaps 2 percent of citizens, and rich ones at that, has remained consistently high and suggests Americans are not driven by envy as Obama hopes.

And the fairness of the progressive income tax? Sixty-nine percent of likely voters believe that if someone earns twice as much, they should pay twice as much in taxes—the definition of a flat rate income tax. Only 13 percent believe they should pay more than twice as much, the hallmark of a progressive tax structure.

How much should the rich actually pay? Today’s top rate for personal income taxes is 35 percent. Obama plans to watch that jump to about 44 percent in January 2013 (including the Obamacare surtax). And Obama’s stated goal is a new 30 percent Alternative Minimum Tax that will (for the short term anyway) only hit those earning a million dollars a year.

Asking, “What is the maximum percentage of a person’s income that should go to taxes—that is all taxes, state, federal and local?” Rasmussen found in April 2011 that 74 percent of Americans believed no one should have to pay more than 20 percent of his income in taxes. This is consistent with historical polls by the Tax Foundation, which found in 2009 that 24 percent of Americans believed that figure should be less than 10 percent, while 42 percent wanted the burden between 10 and 20 percent, and 22 percent were OK with a burden between 20 and 29 percent. (For the record, 1 percent thought the max tax should be zero.)

Remember that this question was for all taxes combined. Today, Americans pay 28 percent of their personal incomes in federal, state, and local taxes.

There is a danger for Republicans in the polling data. Fully 64 percent of Americans believe the middle class pays a larger share of its income in taxes than wealthy Americans do. Pew Foundation polling found that 57 percent of Americans “are bothered by what they believe are unfairly low amounts paid by the wealthy.”

There are two answers to this concern.

The most obvious one is to highlight the facts. In 2007, the most recent year with full data available, the top 1 percent of American earners paid 39.5 percent of all federal individual income taxes. The top 5 percent paid 61 percent, the top 10 percent paid 72.7 percent, and the top 20 percent paid 86 percent. The top 40 percent of income earners paid 98.7 percent of all federal personal income taxes. The bottom 40 percent received IRS checks from the government greater than any income tax paid. The tax system paid them.

It is difficult to educate voters about something they do not know and perhaps do not wish to believe, in the middle of a political campaign where all messages are understandably suspect. Better to build on the fully justified fear Americans have that any effort to tax the rich will actually hit them.

Rasmussen found in July 2011 that 75 percent of Americans believed any debt ceiling solution that balanced tax increases and promised budget cuts would actually result in higher taxes for the middle class. Despite Obama’s promises to tax “the rich,” they understood that the middle class was the real target.

2013 Tax Hikes

  • Tax Rates Rise from Range of 10-35 Percent Up to 15-39.6 Percent
  • Capital Gains Tax Rises from 15 to 23.8 Percent
  • Dividends Tax Rises from 15 to 43.4 Percent
  • Tax on Majority of Small Employer Profits Rises from 35 to 43.4 Percent
  • Death Tax Rate Rises from 35 to 55 Percent
  • Death Tax “Standard Deduction” Falls from $10 million to $1 million
  • Employee Social Security Tax Rate Rises from 4.2 to 6.2 Percent
  • Households Affected by Alternative Minimum Tax Rises from 4 Million to 30 Million Households
  • Research and Development Tax Credit Disappears
  • Marriage Penalty Returns for All Taxpayers; Child Tax Credit Cut in Half from $1000 to $500

OBAMA IS NOT EXACTLY the first American politician to try to pit taxpayers against each other by promising to tax “the rich.” Five times in Massachusetts, the advocates of a graduated or progressive income tax have placed on the ballot a measure to repeal the present constitutionally mandated flat tax. Five times—1962, 1968, 1972, 1976, and 1994—the people of deep-blue Massachusetts voted down the move, understanding that eventually, and soon, the higher taxes would hit everyone. On the other side of the continent, equally deep-blue Washington state has seven times voted down the imposition of an income tax—in 1934, 1936, 1938, 1942, 1970, 1973, and, in the age of Obama, 2010. The most recent attempt, led by rich liberals such as Bill Gates’ father, would have imposed an income tax only on individuals earning more than $200,000 or married couples earning $400,000. It was voted down 64–36, despite the fact that the initiative sweetened the pot by promising simultaneously to limit the statewide property tax by 20 percent and hand out higher business and occupational tax credits. Bribery and envy were not enough in a state Obama carried in 2008 with 57 percent of the vote.

Polling and voting history show Americans are not excited about looting “the rich.” They do, however, want to know they are not paying more than those who earn more than they do. The transparency of a flat-rate income tax would help provide that assurance. Complexity is the ally of politicians who peddle the claim that “they” are not paying their fair share. And, fatal to Obama and Schumer’s plan, Americans know in their guts that efforts to tax the rich put them in the crosshairs.

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