In President Obama’s latest class-war, tax-the-rich gambit, he has stooped to a new low with misleading and out-of-context quotes from Ronald Reagan. Apparently, the president is now trying to use the Gipper for cover while he attacks Mitt Romney with the so-called Buffett Rule.
In an address this past week, Obama cited a couple of Reagan speeches from June 1985, in which the former president quoted a letter from a wealthy executive who grumbled that he paid less in taxes than secretaries or bus drivers. Obviously, Obama was trying to draw a parallel with Warren Buffett’s complaint that his tax rate is lower than his secretary’s, and to the resulting Buffett Rule, a proposed 30 percent minimum tax on millionaires. With a tongue-in-cheek flourish, Obama referred to Reagan as “that wild-eyed, socialist, tax-hiking class warrior.”
Of course, Obama doesn’t tell you that Reagan had a completely different tax-reform vision. And reality. Rather than raising the capital-gains tax on successful investors or punishing wealthy people — which are Obama’s priorities — Reagan wanted full-bore pro-growth tax reform that would slash rates for everyone, simplify the tax system with only two brackets, and eliminate tax shelters that allowed people to avoid paying any taxes at all.
Obama’s duplicity in misquoting Reagan was chronicled nicely by Glenn Kessler of The Washington Post. Kessler pointed out that Reagan said, “We want to cut taxes, not opportunity. … By lowering everyone’s tax rates all the way up the income scale, each of us will have a greater incentive to climb higher, to excel, to help America grow.”
This is Reagan the supply-sider emphasizing economic-growth incentives. The Gipper had nothing to do with punishing rich people or jacking up the capital-gains tax, which is probably the most important investor-class tax on risk and entrepreneurship. The cap-gains tax is certainly the most important stock market tax, with dividends taxes (which Obama also would raise) a close second.
Reagan, who lowered the cap-gains tax from 28 percent to 20 percent in his first term, actually wanted to lower it to 17.5 percent in his second term. The way the story ended, the final tax bill had two brackets of 15 percent and 28 percent, with substantial base-broadening and loophole-closing. Indeed, by slashing the top income-tax rate from 70 percent all the way to 28 percent, Reagan launched a huge prosperity boom that basically spanned three decades.
As we know, Obama has a totally different vision. The president’s budget would lift the top income and investment tax rates to about 45 percent. Meanwhile, the integrated corporate and capital-gains tax would be 55 percent.
Instead of rewarding success, Obama punishes it. Instead of economic growth, he talks about tax fairness, which is a euphemism for redistributing resources from private hands to the government sector. The exact opposite of Reagan.
By the way, we already have an alternative minimum tax. And the IRS shows that the wealthy pay roughly twice the effective tax rate of those in the middle class.
And while Obama talks about cutting the deficit, the Joint Tax Committee says the Buffett Rule would produce about $5 billion a year, for maybe $47 billion over ten years. Compare that to $45 trillion in spending over that period.
But wait, Uncle Sam might not get a dime from Obama’s millionaire’s tax. History shows that a higher capital-gains tax reduces revenues from slower growth, countless evasions and a non-realization of gains. The only budget surplus in my lifetime occurred in the late 1990s. It followed a Clinton-Gingrich cap-gains tax cut, which produced a flood of revenues from growth and wealth-creation.
But in truth, this whole millionaire’s tax is a political ploy. And it’s aimed at Mitt Romney and his business success. That’s why the White House wants Romney to release tax returns going back to the 1970s. And that’s why Vice President Joe Biden is on the campaign trail talking about the “Romney Rule,” which he says means “Let’s double down on tax cuts for the wealthy.” In fact, Romney has proposed a Reagan-like 20 percent tax cut for all taxpayers. And Congressman Paul Ryan, one of Obama’s favorite targets, has proposed a Reagan-like tax reform that would simplify rates to 10 and 25 percent while removing numerous loopholes and tax shelters.
These are pro-growth visions. Obama’s is an anti-growth vision.
Just this past week, New Jersey governor Chris Christie said Obama’s divisiveness is demoralizing to the economy and the country. And former GE CEO Jack Welch told me in an interview that Obama has taken a “divide-and-conquer approach, amassing a list of enemies that would make Richard Nixon proud.”
Ronald Reagan’s optimistic rising-tide-lifts-all-boats message was the direct opposite. For Obama to attempt to associate himself with Reagan is a demagogic falsehood of the worst kind.
Larry Kudlow is the host of CNBC’s “The Kudlow Report.”