It could almost make your head spin. With an economy on the front end of another recession, President Obama’s tax attack on the folks who are most likely to succeed, invest, start new businesses and create jobs is nothing short of staggering. Only liberal-left class-warfare ideology can explain this.
In his speech on Monday, Obama laid out $1.5 trillion in tax hikes over 10 years, aimed almost entirely at America’s well-to-do. This includes $800 billion from rolling back the top rates in the Bush tax-cut plan, $470 some-odd billion to reduce itemized deductions for upper-bracket payers and — oh yes — a millionaire’s tax called the “Buffett Rule.”
Pause a moment on the Buffett Rule. Almost all of Warren Buffett’s income comes from capital gains taxed at 15 percent. He only pays himself $100,000 a year, which would be taxed at the top rate. Most of his wealth is untaxed as unrealized capital gains. So his effective income-tax rate is lower than his secretary’s.
The vast majority of millionaires pay a 35 percent current tax rate on personal income from salaries, bonuses and small-business income. Their effective tax rate is around 30 percent, much higher than the roughly 20 percent effective rate for the so-called middle class (depending, of course, on how you define the middle class).
Remember that the top 1 percent of income-tax payers shoulders 40 percent of all income taxes. They are paying their fair share. Then remember that 50 percent of income-tax filers don’t pay any income tax at all.
Obama refuses to tell us what the new millionaire tax rate would be, or what the formula might be in relation to middle-class taxpayers. But one thing’s for sure: This new Buffett tax is a penalty on investment, risk-taking and job-creation.
No one even knows what the targeted group is going to be. A New York Times story suggests that the Buffett tax will hit three-tenths of 1 percent of taxpayers, which could be 450,000 people out of 144 million tax returns.
A Wall Street Journal story suggests the Buffett tax would have hit just 22,000 people in 2009, those households making more than $1 million annually and paying less than 15 percent of income in federal income taxes. According to the Tax Policy Center, doubling the tax burden of those 22,000 would raise just $19 billion a year. How silly is this?
And let’s also not forget that over the past four decades the evidence is absolutely clear that a lower capital-gains tax produces huge gains in revenues. Raising the cap-gains tax lowers revenues. It’s a pure Laffer-curve effect.
Clearly, the logic here is political, not economic. And it’s equally clear that Mr. Obama is now catering to his liberal-left base. I guess his logic is that even though so many people don’t have jobs, they’ll feel much better knowing that 22,000 rich people will have a higher tax rate.
Adding to this bizarre scenario, Obama knows full well that the debt-ceiling deal now moving to the phase-two super committee rules out tax increases. He also knows full well that none of these tax hikes will ever get through the GOP House. Perhaps, as Congressman Paul Ryan notes, class warfare makes for good politics. Perhaps.
But Ronald Reagan was branded a class warrior for the Kemp-Roth tax cuts, and he was overwhelmingly reelected. Why? Because low tax rates reignited economic growth and job-creation. Today, the president’s militant tax-hike threats, along with Obamacare and unmanageable regulatory costs, are holding back job-creators.
And Paul Ryan makes another key point: Tax investment more, and you’ll get less of it. If these kinds of tax hikes are ever passed, the economy will be doomed to stagnation over the long run. Penalizing incentives will do that. And lower growth means higher deficits.
Why in the world doesn’t President Obama follow the overwhelming consensus for fundamental tax reform to lower marginal rates and broaden the income base? Economists of all stripes agree on this.
At the end of the day, it sure looks like our president wants to raise taxes on wealthy Americans and large corporations in order to spend more and enlarge the size and scope of government. From the standpoint of jobs, growth and prosperity, it just won’t work.
Larry Kudlow is the host of CNBC’s “The Kudlow Report.”