What the (Bleep) Just Happened? (23 page)

Obama escalated his hits on everybody on the leftist checklist of “rich” bogeymen, including most prominently “millionaires and billionaires,” by whom he means those making as little as $200,000 per year or more. In a high-cost state like New York, $200,000 per year could be made by a married veteran teacher and police officer, hardly the Bill Gateses of the world. And there is quite a difference between someone making $1 million and someone making $1 billion. Obama’s not exactly a Mathlete. In fact, when Obama first swept into office, fellow redistributionist senator Max Baucus, chairman of the Senate Finance Committee, which has jurisdiction over federal tax law, introduced a bill that would have increased the income tax rates on some Americans who earn as little as $104,425 per year. He proposed to raise the top
two
income brackets to 36 percent and 39.6 percent, respectively. Fortunately, the Baucus bill bit the dust, but it reveals just how much the leftists are constantly dying to raise taxes not just on the “rich” but on the middle class as well.

To his caricatured “millionaires and billionaires” Obama added the omnipresent leftist villains “corporations,” “corporate jet owners,” and “Big Oil” to his list of dastardly “rich” folk who needed to hand over more of their assets. Never mind that the U.S. corporate tax rate—35 percent—is now the highest in the world, which has induced countless U.S. companies to move their operations abroad and park trillions of dollars overseas in an effort to avoid that prohibitive tax. If the corporate tax rate were lowered substantially, those companies would likely bring that money back to invest and hire. In fact, a 2011 study by the National Bureau of Economic Research published in the
American Economic Journal
found that the higher the corporate tax rate, the more companies seek to avoid it, resulting in less economic growth.

Obama also hit out at corporate jet owners regardless of the fact that scrapping the corporate jet tax break would raise just $3 billion over ten years, a mere spit in the ocean of government spending. Even his bromantic partner in all things taxes, billionaire investor Warren Buffett, refused to endorse his corporate jet tax increase, probably because Buffett’s firm, Berkshire Hathaway, owns private business jet charter company NetJets. Obama also failed to mention that his own “stimulus” plan actually created a subsidy for the private jets he was demonizing. What a clustermess. Every night when Obama’s head hits his Tempur-Pedic pillow, he dreams he’s Samuel L. Jackson in
Snakes on a Plane
. But in Barry’s fantasy, instead of fighting giant cobras, he’s on a Gulfstream IV corporate jet, trying to throw bankers and floor traders from the emergency exit.

Over the past few decades, empirical evidence has shown that keeping tax rates permanently low incentivizes economic growth and job creation as it creates economic certainty, which allows for longer-term planning and puts more money in the pockets of individuals, businesses, and other risk takers who grow the economy. The dramatically lower marginal tax rates put in place by President Reagan—with a top rate of 28 percent—led to the strongest two and a half decades of economic growth in American history.

In fact, the data show that the federal income tax actually brought in
less
revenue as a percent of GDP when the highest rate was 70 percent to 90 percent than it did when the highest rate was 28 percent. As Alan Reynolds of the Cato Institute has pointed out, when the top rates were approaching the astronomical 92 percent, total revenue was only 7.7 percent of GDP. When President John F. Kennedy lowered the top rate to 70 percent (and moved the lowest rate down to 14 percent), revenues rose to 8 percent of GDP. When President Reagan cut rates across the board and made the highest rate 50 percent and the lowest 11 percent, revenues rose again, to 8.3 percent of GDP. After Reagan oversaw the 1986 tax reform that slashed the top rate to 28 percent, revenues dropped only slightly, to 8.1 percent. Lowering top marginal tax rates paid for itself regardless of what happened to the economy or to GDP performance in any given year. Reductions in top rates under Presidents Kennedy and Reagan as well as reductions in capital gains tax rates under Presidents Clinton and George W. Bush covered their own “costs” and generated more revenue than when rates were higher. The result was consistently strong economic expansion.

The converse is also true: higher rates mean poorer economic performance. As economist Arthur Laffer has argued, as tax rates increase, the number of people paying taxes declines, leading to a shrinking tax base. That, in turn, can lead to rates that are so high to make up for fewer taxpayers that they become prohibitive. Revenue then falls dramatically and leads to further economic harm. History shows that government revenues increase when there is economic growth and more taxpayers in the workforce.

If you calculate the current top tax rate, 35 percent (scheduled to shoot up to 39.6 percent in 2013), plus state income taxes, payroll taxes for Social Security and Medicare, as well as the new 0.9 percent increase in payroll taxes to fund ObamaCare, many Americans could be looking at total tax bills of 58 percent to 70 percent of their incomes, depending on their income and the state income tax rates where they live. Only a devout kook would think this is a good idea. It’s about as brilliant an idea as sticking your hand into a bowl full of mosquitoes or letting Gary Busey babysit your kids. The kooks love to point to the supposed glory days of drastically higher tax rates and pine for their reinstatement. Leftist economists like former Clinton Labor secretary Robert Reich have argued for a return to the 70 percent top marginal rate, cheered on by the academic left and some Democrats in Congress. Reich prefers a slower, more agrarian culture, like his native homeland called The Shire, located in the Northwest part of Middle Earth.

The redistributionists, however, ignore some inconvenient truths about those high tax rates. First, there was no limit on deductible expenses, including taxes paid, installment interest on credit cards, personal borrowing, and even medical expenses, not to mention lunch with the boys. There also existed no punitive Alternative Minimum Tax, which today hits so many middle-class taxpayers that each year Congress has to exempt millions from it. As a result of the atmospheric tax rates, tax shelters sprang up everywhere and were used by nearly every investor. The end result was that the 70 percent top rate with which Reich and the Left are so in love actually wasn’t that high, given all the deductions and maneuverings that were allowed. Today, a 70 percent rate would be much closer to an actual 70 percent rate and would wreak movie-monster havoc on the economy. It would have us living like Bob Cratchit in
A Christmas Carol
, dressed in hand-me-down rags, eating one terrible meal a day by candlelight with no heat in the house. To paraphrase Tiny Tim, “Goddamn Marxists, everyone.” I think I got that right.

The leftists also blow off the historical evidence that lower capital gains and dividends tax rates raise more tax revenue. When the capital gains tax rate is lower, more taxpayers are willing to sell assets and fork over the tax money, so the feds get more revenue, mainly because the number and frequency of taxable transactions increase. When the capital gains tax rate gets prohibitively high, they’re less likely to sell their assets and thus the revenue level drops.

The redistributionists ignore these facts; they care more about punishing the successful than filling the Treasury, although they do “heart” your money.

To be clear: neither Obama nor any of his fellow class warrior kooks ever say they want to raise taxes on YOU. They always say they want to raise taxes on your big, rich, meanie boss and those capitalist pig companies that sell you your car, the gas that goes in it, your clothes, electricity, cigarettes, and indoor tan. They never tell you that those higher taxes get passed on to you in the form of higher consumer prices. Instead, it’s always about sticking it to “the man” while pretending to protect the middle class as they go about their noble government work. People forget that you don’t have a right to be employed, so if “the man” takes a hit, you just might find yourself at home, broke, watching
The Steve Wilkos Show
.

At one point during the 2011 debt negotiations, Speaker John Boehner criticized the Obama White House for its intransigence over tax hikes. “Dealing with them the last couple months has been like dealing with Jell-O,” Boehner said. “Some days it’s firmer than others. Sometimes it’s like they’ve left it out overnight.... The only thing they’ve been firm on is these damn tax increases.”

President Jell-O was all over the map in the debt negotiations except when it came to raising taxes. Then he became President Krazy Glue. Obama referred to his desire for higher taxes as a commitment to a “balanced approach,” in which “cuts” may be made (though not really) and taxes are increased to better achieve that “shared sacrifice.”

The inconvenient truth is that in 2009, 51 percent of tax filers paid no federal income taxes at all. While it’s true that they pay other taxes, including Social Security taxes, when it comes to federal income taxes, half of all Americans are now on a collective free ride. More outrageously, 30 percent of tax filers had a
negative
tax liability in 2009, meaning they actually made money off the tax system from refundable tax credits such as the Earned Income Tax Credit. When Democrats speak of “shared sacrifice,” they demand that the wealthiest as well as jobs-generating small businesses pay even more, but they’re okay with half the country not contributing anything at all. This non-paying group is also known as a core Democratic constituency.

Into this insane mess of kook class warfare, enter Warren Buffett. For years, Buffett has been whining that his tax liability just isn’t high enough, that as a gazillionaire, he should be paying much more in taxes, that his secretary is paying a higher rate than he is, and oh the humanity! As early as 2007, Obama referred to Buffett’s self-imposed predicament by saying that “a secretary shouldn’t pay more taxes than a billionaire.” Until she showed up at Obama’s 2012 State of the Union address, Buffett’s secretary, Debbie Bosanek, was an elusive creature around whom we were debating national tax policy.

Here’s how Buffett’s tax buffet has warped the conversation. First, Buffett has claimed that he pays just 17 percent of his income to the government. Buffett usually gives himself an annual salary of $100,000, which is taxed at that rate. The bulk of his annual income, however, comes in the form of investment income, which is generally taxed at a lower rate than wages. The current top capital gains tax rate is 15 percent, hence the discrepancy with his secretary, who could be taxed at the top income tax rate of 35 percent rate, depending on her salary.

What Buffett doesn’t say is that much of his capital gains and dividends income is already taxed at 35 percent (via the corporate income tax) by the time he gets to it, so in effect, taxes are being paid twice on the same earnings. After both taxes kick in, Buffett’s effective tax rate would be over 40 percent by the time the feds are done with him, and that doesn’t include state and local taxes. He has argued that passive capital gains should be taxed at a higher rate. But income tax and capital gains tax rates are apples and oranges, and Buffett has been making a fruit smoothie with them for years. Obama has been mixing his taxes up deliberately as well, and he’s never let the disingenuousness of the comparison stop him. If Buffett is so enthralled with the idea of paying more in taxes, nothing is stopping him from writing a check to the Treasury for whatever amount he thinks might alleviate his anguish. The same is true for former Google executive Doug Edwards, who attended an Obama fund-raiser in the fall of 2011 and told him he was so rich that he was unemployed “by choice,” and then begged him to raise his taxes. Edwards’s hand must have carpal tunnel syndrome because he has yet to write an additional check to the government either. Funny how that works: the super-rich complain publicly about their light tax load but never pay a dime above what their accountants tell them they owe. They never want to be the only sucker paying more. Instead, they are asking
everyone
in that upper bracket to be
forced
to pay more under penalty of jail.

Further, if Buffett had real confidence in the government’s ability to “invest” taxpayer money wisely, he’d not only voluntarily pay more to the Treasury. He’d also be bequeathing his massive fortune to the state upon his death. Instead, he has already committed much of his personal wealth to a private charity, the Bill and Melinda Gates Foundation. By doing so, he, like many others, reduces his estate tax exposure while also receiving the benefits of charitable deductions while he’s still alive. To be clear, charitable giving is most often a noble act. It should not, however, escape notice that through the deduction, the taxpayers are in essence contributing to Buffett’s charitable giving. (That is, for every dollar that Buffett gives to charity, a certain percentage would have otherwise gone to the government in the form of taxes.) This is his prerogative, of course, but while he lectures the rest of his super-rich friends to cough up more money to the feds, he minimizes how much the feds get from him every chance he gets.

While we’re on the subject of tax hypocrisy, let’s check out the Obamas’ 2010 tax return. The first family’s adjusted gross income for that year was $1.728 million. Their taxable income after deductions was $1.34 million. This means that they saved nearly $400,000 through deductions—such as $78,269 for state and local taxes and $49,945 for mortgage interest on their home in Chicago as well as charitable deductions. They also received a $12,334 tax refund from the federal government that year. So while Obama has been telling us that paying more taxes is the “neighborly” thing to do, he’s been minimizing his tax bill as much as possible. If Obama really believes that “rich guys like him” should pay more in taxes, then why doesn’t he pay more himself? Why does he take every possible deduction? And why didn’t he sign over that $12,000 refund back to the U.S. Treasury? Here’s why: so he can afford more Blu-ray discs of the movies that have been adapted from Nicholas Sparks novels, like
Dear John
and
The Notebook
. It’s a romantic tradition that every Friday night, Rahm Emanuel flies in from Chicago and they watch one alone, just the two of them, wrapped in a single, oversized Snuggie.