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Tuesday, September 20, 2011

This is not Math; it's Class Warfare

President Obama has been woefully misinformed.  That is putting yesterday's speech in the best light.  Others, and I don't blame them for saying such, accept that the president is pushing an outright lie in order to aid his re-election.  I prefer to believe that Obama is not attempting to purposefully sabotage our nation, but it is becoming more difficult to do so.

In 2009, the president said that raising taxes during a recession would be bad.  Our economy is currently on the verge of another recession.  Apparently, someone needs to mention this to the president because yesterday, Obama proposed a $1.5 trillion tax increase.  If passed, that would be detrimental to a recovery by his own admission.

This year households earning more than $1 million will pay an average of 29.1% of their income in taxes.  Households earning $50,000 - $75,000 will pay 15% of their income in taxes.  The Associated Press fact check states,
On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
Despite the obvious data, President Obama continued to argue that the wealthy shouldn't get a better deal on taxes than "ordinary families".  He added, "This is not class warfare, it’s math."  Maybe he needs to grab a calculator.

He then went on to say that, "The money’s going to have to come from some place".

In 1977, the capital gains tax rate was 39.9 and realized gains amounted to 1.57% of GDP.  From 1987-1996, the rate was lowered to 28% and realized gains rose to 2.3% of GDP.  From 2004-2007, when the rate was only 15%, realized gains resulted in 5.2% of GDP.  15% of 5.2 is of course, greater than 39.9% of 1.57 - this is real math.

Even worse for the president's "it's math" argument is that despite changing tax rates, the amount of revenue collected remains very stable in relation to GDP.  In 1977, when capital gains were taxed at 39.9% and ordinary income and dividends at 70%, revenue was 18% of GDP.  In 1992, tax cuts and adjustments to our tax system by Reagan/ Bush I, revenue was 17.5% of GDP.  In 2007, even with the Bush tax cuts and a new lowered 15% capital gains rate, revenue was 18.5% of GDP.

Taxes on all levels are somewhat voluntary as I explained yesterday in my article, The Jobs Conundrum, but capital gains are completely voluntary.  Trying to increase revenue by raising this rate is not backed up by the math.

So what if Obama isn't misinformed?  What if he knows the math?  What if he understands that this tax increase will not increase revenue?

In April 2008, during a democratic debate, Senator Obama said, "what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair."  

In response, debate moderator Charles Gibson pointed out, "But history shows that when you drop the capital gains tax, the revenues go up.....and in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?"

Well, Charlie,” Senator Obama replied, “What I’ve said is that I would look at raising the capital-gains tax for purposes of fairness.”

The truth is he understands the math, but his position isn't really about math - it's about fairness.  Even worse, it has nothing to do with jobs, the economy or even Warren Buffet's secretary.  J.D. Foster, writing at the Heritage foundation in March 2010 put it rather succinctly, "Obama is willing to trade losses in jobs and wages to advance his political ideology for tax fairness".

The answer to our spending/revenue problem can be found as an inverse of Obama's speech when he said, "If we’re not willing to ask those who’ve done extraordinarily well to help America close the deficit, the logic, the math says everybody else has to do a whole lot more."  Instead of everyone  needing to do a whole lot more, perhaps the government should just try to do a little less.

Yet, Obama's response is always the same - tax the wealthy.  He uses Warren Buffet in order to make it sound like he's responding to a special request from the billionaire, but he was talking about tax fairness for (hypothetical) secretaries while he was still Senator.  His economic plan in his 2008 election campaign? Tax the wealthy.  His 2010 budget plan?  Tax the wealthy.  How to fund Obamacare?  Tax the wealthy.  2011 budget?  Tax the wealthy.  Debate ceiling?  Tax the wealthy.  Deficit reduction?  Tax the wealthy.  What do you do when you increase the federal debt by over $4 trillion in just 2 1/2 years?  That's right, just tax the wealthy. 

I couldn't agree more with John Podhoretz in today's New York Post,
We’re not just in the economic doldrums; we’re not just possibly in or on the way to a recession. As President Obama’s remarks yesterday indicated, everyone in this country is trapped inside the movie “Groundhog Day.”
We’re all Bill Murray, and we’re all waking up every morning to the same conditions, the same lack of any real chance of improvement -- and the same Obama speech we heard yesterday and the day before and the day before that.
Raising taxes to pay for the federal largess will result in decreased economic activity and fewer jobs.  "it's math", as the President would say.  If Obama doesn't change his tune, here's my rock solid economic prediction:
It’s gonna be cold, it’s gonna be gray and it’s gonna last you for the rest of your life......well, at least until November 2012.

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