This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published July 28, 2011 on Forbes.com.
President Barack Obama’s speech to the nation Monday night was highly disturbing. Because read carefully, it reveals a president wildly divorced from the fundamental realities of the nation he is supposed to be leading.
President Obama actually told America on national television that it is a nation “with a system in which the deck seems stacked against middle class Americans in favor of the wealthiest few.” It is incomprehensible how a man serving as president of these United States could make such a fundamentally false assertion about his own country.
As I explain in my new book, America’s Ticking Bankruptcy Bomb, before Obama was even elected, official IRS data showed that for 2007 the top 1% of income earners paid more in federal income taxes than the bottom 95% combined. The top 1% paid 40.4% of all federal income taxes that year, almost twice their share of income. The middle fifth of income earners, the actual middle class, paid 4.7% of federal income taxes. Deck stacked against the middle class in favor of the wealthiest few?
Moreover, the bottom 40% of income earners as a group paid no federal income taxes that year. They instead received net payments from the IRS equal to 4% of total federal tax revenues. As my book explains, this was actually the result of nearly 30 years of Reaganomics. Today close to 50% of Americans pay no federal income tax.
We see the same in some states. In California, the top 1% pay 48% of all state income taxes. In New York, the top 1% pay 41% of all state income taxes. In New Jersey, until recently the top 1% paid 46% of state income taxes.
Moreover, America’s corporate income tax rate is virtually the highest in the industrialized world at nearly 40% on average, counting state corporate rates. Even Communist China has a 25% corporate rate, with the average in the mostly socialist European Union below that. In formerly socialist Canada, the corporate rate today is 16.5%, scheduled to fall under current law to 15% next year. Doesn’t sound like America suffers a deck stacked against the middle class in favor of the wealthiest few.
And already scheduled under current law for 2013 are increases in the top tax rates of every major federal tax, apart from the already too high corporate tax rate. That is because the ObamaCare taxes become effective that year, and the Bush tax cuts expire. So the top two income tax rates would go up nearly 20%, the capital gains tax rate would go up nearly 60%, the tax on corporate dividends would nearly triple, and the Medicare payroll tax would go up 62% for the nation’s small businesses, job creators and investors.
Obama’s wildly erroneous statement Monday night indicates he is not living in the real world, which is dangerous for America. These tax policies so heavily skewed against the nation’s small businesses, job creators and investors are central reasons why there has been no recovery from the last recession, why working people can’t get jobs, why their wages are falling in real terms, why unemployment is still rising 3.5 years after the last recession started, why a record number of Americans are in poverty. As a consequence, in reality, it is Obama’s anti-market economic policies that are actually in effect stacked heavily against the middle class, working people and the poor.
Obama also told the nation Monday night he wants to “ask hedge fund managers to stop paying taxes at a lower rate than their secretaries.” This is another false truism that is widely circulated throughout the liberal left. The allegation arises because capital gains income is taxed at 15%, while individual income tax rates range higher than that. But as I explain in my book, the fundamental mistake is the failure to recognize that capital income is taxed multiple times, not just by the capital gains tax. It is taxed at least four times, by the individual income tax, the corporate income tax, and the death tax, besides the capital gains tax. That is why the most fair as well as most economically productive rate for the capital gains tax would be zero, as is the case in much of the industrialized world.
The president further proclaimed Monday night that “most Americans don’t understand how we can ask a senior citizen to pay more for her Medicare benefits before we ask corporate jet owners and oil companies to give up tax breaks that other companies don’t get.” But his ObamaCare law already more than asks seniors to pay more for their Medicare benefits. It requires them to pay 40% to 200% more if they, in the President’s infinite wisdom, earn too much, defined as over $85,000 a year this time.
Note also the tax break for corporate jet owners was adopted in the Obama stimulus to create jobs in corporate jet manufacturing. Yet, such tax breaks for corporate jets or oil companies that other companies do not get are special interest, central economic planning loopholes that undermine the economy rather than advance it. The only truly pro-growth tax policy is the lowest possible tax rates for all, with no special interest loopholes. But the amount of revenue lost on Obama’s corporate jet scam is so trivial it is not even worth talking about as possibly even contributing to solving the deficit and debt crisis.
Finally on Monday night, Obama threatened America’s seniors with more, saying that if House Republicans don’t agree to his tax increase to increase the debt limit, “we would not have enough money to pay the bills — bills that include monthly Social Security checks.” This can only be described as calculated deception.
The Social Security trust funds include $2.7 trillion in government bonds, which are due and payable when needed to pay Social Security benefits. As I also show in my book, those bonds do not represent any real savings and investment. They involve only a statement of the legal authority Social Security has to draw from general revenues, on top of payroll tax revenues. But in dealing with a crisis over the debt limit, that legal authority can be the critical factor.
While those bonds are explicitly not transferable, and so cannot be sold to the public to raise money, under prior practice they would be cashed out by selling new government bonds to the public. Since the Social Security trust fund bonds are included in the national debt subject to the debt limit, they can be replaced by such new public bonds without the total debt going over the limit.
Moreover, those Social Security trust fund bonds are explicitly backed by the full faith and credit of the U.S. That means Obama is constitutionally required to pay them when needed to pay Social Security benefits. In addition, there is more than enough general revenue coming in to just cash out the trust fund bonds as necessary in any event, even without issuing any new public bonds.
As a result, Obama is constitutionally required to pay Social Security benefits, under his constitutional duty to take care that the laws be faithfully executed. That means failing to pay those benefits would be an impeachable offense.