This column by ACRU General Counsel and Policy Director for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published April 14, 2011 on Forbes.com.
President Obama’s budget speech Wednesday fatefully framed the debate for 2012. House Budget Committee Chairman Paul Ryan’s 2012 budget proposes to return the level of federal taxes relative to the economy to the long run, historical, postwar average over the last 60 years at 18.3% of GDP. Ryan’s budget would also return the level of federal spending over the next 10 years to its long run, postwar, historical average as a percent of GDP, and even below that in subsequent decades.
President Obama’s budget proposals Wednesday lacked the specifics of Ryan’s complete budget. They were expressed instead in rhetorical terms more suitable to a campaign speech than to a serious budget plan. But the specifics Obama did provide, when combined with the thorough 2012 runaway debt budget Obama did propose in February, provide a clear outline of what Obama is now proposing. In sharp contrast to Ryan’s plan, what Obama is proposing is to raise federal taxes well above the long term historical average, even more heavily focused on the nation’s employers and investors, to pay for much more federal spending well above the long term historical average, as explained further below.
Consequently, the issue before the voters in 2012 will be whether they approve of a much bigger federal government with much higher federal taxes and spending than over the prior 60 years.
In 2007, even before President Obama was elected, official IRS data shows that the top 1% of income earners were already paying more in federal income taxes than the bottom 95% of income earners combined. Moreover, the top 3% of income earners were already paying more in federal income taxes than the bottom 97% combined. Yet in his speech Wednesday President Obama doggedly insisted on focusing trillions of dollars in additional taxes precisely on this income group.
Already scheduled in current law for 2013 is the expiration of the Bush tax cuts, which President Obama yesterday refused to renew for single workers making over $200,000 a year, and couples making over $250,000, whom he disparaged as “billionaires and millionaires.” Also scheduled to go into effect in 2013 under current law are all the tax increases of ObamaCare. Together, these policies would result in a sharp increase in the tax rates paid by the nation’s employers and investors for virtually every major federal tax.
The top two income tax rates would increase by nearly 20%. The capital gains tax would increase by nearly 60%, counting the new ObamaCare taxes on investment income. The tax on corporate dividends would increase by nearly three times, counting the new ObamaCare taxes as well. The Medicare payroll tax would also increase by 62% for these taxpayers. If Obama does mean that none of the Bush tax cuts would be renewed for these income earners, then their death tax rate would go up to 55% as well.
Ryan’s budget repeals all of these tax increases. So these Obama tax increases would raise taxes above the long term, postwar, historical average of federal taxes that Ryan restores. But there’s more.
Obama noted in his speech that his 2012 budget already calls in addition “for limiting itemized deductions for the wealthiest 2% of Americans – a reform that would reduce the deficit by $320 billion over ten years.” This $320 billion tax increase would be above Ryan’s long term, postwar, historical average as well.
But President Obama called for raising taxes still more by denying regular deductions to these taxpayers, saying “But to reduce the deficit, I believe we should go further.” He indicates that involves another tax increase of $1 trillion beyond what was already proposed in his budget. That would further increase taxes beyond Ryan’s long term, postwar, historical average.
But Obama was still not done raising taxes. He called as well for an automatic tax increase trigger that would raise taxes still further in 2014 if “our debt is not projected to fall as a share of the economy.” Whatever happened to the principle of “No Taxation Without Representation?” With these automatic tax increases, the tax burden would grow still more beyond Ryan’s long-term historical average.
In addition, American business currently suffers virtually the highest corporate tax rate in the industrialized world at nearly 40%, counting state corporate rates on average. Even in the mostly socialist European Union, the corporate tax rate has been reduced from 38% to 24% over the last 15 years, with lower corporate tax rates from China to India to Canada as well, leaving American business uncompetitive in the world.
Yet President Obama was oblivious to this and the resulting disastrous effect on jobs and wages in his speech, devoting just one sentence to a vague, rhetorical call for “corporate tax reform.” Indeed, he proposed in his 2012 budget still more tax increases on American businesses, which are already built into the nevertheless still disastrous projections of deficits and debt in that budget.
President Obama failed to recognize in his speech Wednesday that tax policy should be driven not by who “needs” a tax cut, but by incentives for economic growth, investment, production and job creation. All of his tax increases on the so-called rich making over $200,000 a year ultimately harm working people the most, as they lose the jobs and wages they need for economic survival.
Indeed, the tsunami of tax rate increases President Obama endorsed Wednesday raise a real possibility of renewed recession in 2013, because of the powerful disincentives they would create. If that happens, revenues will go down, not up, and deficits and debt will only soar further.
Former House Speaker Newt Gingrich, a potential challenger to Obama in 2012, recognized this, calling Obama’s budget speech “a job-killer and not a serious proposal.” He added, “To propose some $2 trillion worth of tax increases in an economy such as this is to claim the Herbert Hoover award.”
With the revival of inflation President Obama’s policies are creating, real wages for working people are falling. African-Americans are suffering unemployment around 15% or above into their third year. Hispanics are suffering double-digit unemployment into their third year as well. Teenagers are being spanked under Obama with unemployment over 20% for the same period, with black teenage unemployment over 40%.
These people are suffering a Great Depression under Obama. That is why the Census Bureau reports poverty at record levels, with more Americans suffering in poverty than ever before since the Census began keeping poverty records over 50 years ago.
The tax increases President Obama proposed would mean more of the same for these victims of Obamanomics, if not worse. The voters will render their judgment on that in 2012 as well.