Thursday, October 14, 2010

Fact Checking the President

Right now, we could decide that every American household would receive a tax cut on the first $250,000 of their income…The leaders across the aisle..want to hold these middle-class tax cuts hostage until they get an additional tax cut for the wealthiest 2% of Americans. It would mean borrowing $700 billion..to give a tax cut..to millionaires and billionaires.” — President Barack Obama, September 15, 2010



Let’s start with “Right now, we could decide that every American household would receive a tax cut on the first $250,000 of their income” and that the Republicans are demanding “an additional tax cut for the wealthiest 2% of Americans.”


This debate is about preserving the Bush tax cuts for all brackets that were enacted earlier this decade that are set to expire January 1 — not creating new ones.


Tax cuts that 28 House Democrats and 12 Senate Democrats, including Democrat Senators Max Baucus, Dianne Feinstein, Ben Nelson, Blanche Lincoln, and Mary Landrieu all voted for in May 2001.


Tax cuts that Senator Baucus, along with Senator Chuck Grassley, said then in voting for them:


“Entrepreneurs and small businesses … will receive 80% of the tax relief…Experts agree that lower taxes increase a business’ cash flow, which helps with liquidity constraints during an economic slowdown and could increase the demand for investment and labor.”


Taxpayers making $250,000 or more are considered middle class in many urban areas with a high cost of living, and are not as the President said “millionaires and billionaires.”


Next up: the President’s comment: “We simply can’t afford” extending the Bush tax cut on the upper bracket.


The US government takes in just $2.2 trillion annually in tax revenues from individuals and companies.


In the 20 months since the President took office, DC has borrowed $2.8 trillion, swamping the annual federal tax haul.


Taxing small businesses and workers won’t cure the nation’s estimated $13.4 trillion national debt. Interest costs on the national debt: about $375 billion.


Next: The president’s statement on reinstating the upper bracket cut: “It would mean borrowing $700 billion in order to fund these tax cuts for the very wealthiest Americans.”


First, that $700 billion cost is not just for one year, it’s represents costs over a decade, according to government estimates, and the figure is actually $679.6 billion.


Moreover, the Treasury Dept. says the cost of the marginal income tax cut for the wealthiest is just $364.5 billion over ten years. The total $679.6 billion cost includes what the upper bracket would forgo in the way of expired tax cuts for capital gains and dividends, and other deductions.


So letting the tax cut on the $250K+ crowd expire would bring in just $36.5 billion to $68 billion in annual federal tax revenues, depending on how you slice it.


And that just about covers the estimated $27 billion in annual Congressional pork spending and many other subsidies given to buy votes, take your pick.


That revenue would cover only about 9% to 18% of the interest on the nation’s debt, which the President and Congress have added to in dramatic fashion.


Government spending that will lead to inflation, pushing your income and capital gains into higher tax brackets, creating more tax bills because the alternative minimum tax and capital gains tax rates are not indexed to inflation (the AMT is catching more of the middle class every year).


You’ll also hear that “just 3% of Americans will be hit with higher taxes, 97% will not.”


Small businesses will be hurt by the tax hike on the upper bracket.


Estimates from the Joint Committee on Taxation, based on IRS 2007 return data, show that 48% of small business net income is reported on the returns of 750,000 taxpayers in the $200K/$250K+ crowd.


That’s the 3% of taxpayers cited now by White House officials. Government estimates show that the IRS is expected to collect $1 trillion in aggregate net business income in 2011. Meaning, an estimated $480 billion will be subject to higher taxes.


The $480 billion is more important than the 3% figure, because it is business income (and not the number of business taxpayers) that fuels new jobs.


“What you should focus on is how much money you are taking out of the hands of the entrepreneurs, not how many entrepreneurs you are taking money from,” says Fox News analyst James Farrell.


Also the President’s new small business jobs bill is partially paid for by a tax on multinationals — even though Treasury Secretary Tim Geithner and the Administration have reassured the American people that the government will export our way out of the present recession.


“My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody … I think when you spread the wealth around, it’s good for everybody.” – President Barack Obama, 2008.


I cede the rest of this column to Fox Business news director Ray Hennessey:


The debate in Congress now about whether the top 2% deserve the same tax breaks as the rest of the country has to be viewed in the context of the above quote, made to the man who would ultimately be known as Joe the Plumber during the campaign of 2008.


At the heart of why the administration does not want every American to be treated equally is an idea that spreading the wealth around – better known as wealth redistribution – helps make the economy better.


If you succeed, you should throw back some of that success to those who don’t, thus making them succeed, too. But there’s no basis in economic theory that supports that.


In fact, wealth redistribution is the destruction of wealth. If you work hard, succeed and make an income that hits some kind of arbitrary level, you are expected then to kick that back to the government so that the public sector can then make sure that those who perhaps have not worked hard or succeeded get an income, too.


So your wealth is capped. More importantly, that approach kills initiative, entrepreneurism and work ethic – all pillars on which this country is built. Why work hard to build your wealth when you will be forced to just give it to others?


On the flip side, why bother even working when you know your income will come from the government, subsidized by taxpayers who have succeeded? It doesn’t take an economic genius to see that such a model isn’t sustainable. Hell, even Cuba wants more free enterprise nowadays.


There is an element of class warfare here, as well. Particularly during an election season highlighted by growing populism, it pays politically to take an “us-versus-them” approach.


But it misses the point that the populism sweeping the country reflects that more and more Americans are finding their hard work is not appreciated, their success is punished and their burden in paying for the rest of the nation – a nation where now a majority of citizens gets a check from the government – is constantly rising.


The top 1% of the country pays 40.42% of the taxes, according to National Taxpayers Union. The top 5% pay 60.63%. Some observers have mentioned the so-called rich have to “pay their fair share.”


Yet, the current tax structure is such that the bottom 50% of this country pays just 2.89% of taxes.


So the reason the administration says the country can’t afford to extend tax breaks to the top 2% is because, indeed, that is true: the country relies disproportionately on the highest earners for the most revenue. So much for “fair share.”


And who are the “rich?” We are told they are “millionaires and billionaires.” Not so.


They are small business owners, fathers and mothers, and, indeed, some people finding that the cost of living makes it difficult to pay for college for their children. We are not talking about Mr. Monopoly here.



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