The Not So Funny Truth About President Obama's Tax Plan
While I have enjoyed some success in parenting, one of my serious failings has been in passing on my political values to my children. To a certain extent this is payback. My parents of blessed memory were both liberal Democrats, and my sister, who is of that same political persuasion, has been heard occasionally to mourn that Mom and Dad, were they alive, would be aghast at their son's conservatism.
In any event, it saddens me to admit that least three of my four children voted for Barack Obama, and I have suspicions about the fourth. My son Nathan is the most outspoken lefty of the bunch, and today he sent me this transcript of a call to the "progressive" radio talk show of Stephanie Miller:
A caller into Stephanie Miller's show the other day had a counter for the popular Republican catch-phrase "I have never been hired by a poor person" which supposedly refers to their theory that taxing wealthy business owners will discourage them to create jobs and allowing the top 1% of the population to do well at everyone else's expense is somehow good for the economy, because of the magical idea of "trickle-down" wealth:-"I have never been laid off by a poor person. I have never been laid off by a poor person who packed up his company and moved it to China for cheap labor. I have never had my life savings wiped out by a poor person who fraudulently mismanaged a company and hid the losses. I have never had my life savings wiped out by a poor person running a Ponzi scheme. I have never had to pay to bailout a poor person who mismanaged an auto company and begged for money while still traveling in a private jet. And finally, I have never been hired by a poor person, and a rich person never gave me a raise until I joined a union."
Here is the response I wrote to my son:
Was the caller really suggesting that he has never received a raise in a non-union job? I suppose that may be true for that particular caller, but to suggest that only unionized employees ever receive pay raises is absurd.
As for the rest of the caller’s remarks, well, they are very clever and funny like most of the humor on Stephanie Miller’s show, and also like most of that humor, mostly empty of substance.
Currently 80% of the individual income tax paid in this country is paid by only the top 20% of wage-earners. The bottom 40% of wage earners pay no income tax at all. The top five percent of income earners pay over half of all income taxes, even though their earnings represent only about 31% of all income. That was already a pretty progressive system—those making the most money were paying most of the taxes and more than their proportional share of total income taxes based on their share of income.
Under the Obama Administration’s tax plan, 90% of income tax revenues would be paid by the top 20% of wage earners, and 50% of wage earners would pay no income tax at all. Does that really strike you as fair and equitable?
Well, some people would respond, “So screw the rich people. What do I care?” But please keep a couple of things in mind:
(1) Under President Obama’s tax plan, the maximum marginal tax rate, increasing from 35% to 39.6%, kicks in at $200,000 for a single person and $250,000 for a married couple. That’s already “the wealthy” according to the President. So the rich people getting screwed include your parents. If we pay more in taxes we will have to cut back somewhere. Maybe on “child support.”
(2) Despite the really clever humor on the Stephanie Miller show, the fact is that most new jobs are created by small to medium size businesses. Under the higher federal rate and the soon-to-be-higher State of California income tax rates, the owners of those businesses will be facing a marginal tax rate of over 50% of their net income above $250,000. So please honestly consider: If someone is trying to decide whether to expand his business, or put in more hours at the office, or take more risk, or hire more employees (including perhaps you), and he knows that he will pay perhaps 55 cents of every additional dollar he earns through this effort in income taxes, do you think that might encourage or discourage him? As someone who is in that position, it certainly discourages me.
Moreover, the Obama tax plan also limits the tax deductions of those married couples earning more than $250,000 to 28% of the item (such as charitable giving or home mortgage interest), even though their tax rate is 39.6%. That means that those taxpayers will pay 11.6% more in taxes on deductible items For example, a person who donated $1000 to charity, and previously would have received a $396 tax deduction on account of the donation, now will only receive a $280 tax deduction, and will pay $116 dollars more in federal income taxes on account of the $1000 in income that he donated. By devaluing tax deductions in this manner, the effective marginal tax rate on these taxpayers goes above 40%. Charities are going to feel the impact. Also, because the limit on deductions also applies to the home mortgage interest deduction, it will discourage people in those tax brackets from buying more expensive homes, or refinancing to meet other expenses, all of which of course will be a great stimulus to the economy.
I know that those considerations are not cute or witty enough to make it onto the Stephanie Miller show. Serious matters seldom are.
Well that was my best effort. Readers, your offerings of a better response would be greatly appreciated.
Lowell the Hedeghog has a thought: Ralph, I was struck by the reference in Nathan's comment to
the popular Republican catch-phrase "I have never been hired by a poor person" which supposedly refers to their theory that taxing wealthy business owners will discourage them to create jobs and allowing the top 1% of the population to do well at everyone else's expense is somehow good for the economy.(Emphasis added.) I love that unintentional but revealing admission: In the liberal view, tax policy is about the extent to which the government "allows" people to do well. I really do think the Democrats are handing the GOP a huge and powerful issue for 2010. I just hope the damage done to the economy by then will be reversible without the passage of too many years.