|Raising Taxes on “The Rich” Will Harm the Economy|
By Timothy H. Lee
Thursday, July 29 2010
Consumer spending fuels two-thirds of the massive American economy.
Meanwhile, the top five percent of income earners account for fully one-third of that consumer spending.
So remind us again, Obama Administration: Since that critical income segment supports such a disproportionate share of the nation’s vitality, how does suddenly raising their taxes energize the struggling economy?
The question of whether to raise taxes on income earners over $200,000 is quickly becoming the central debate as the 2001 and 2003 tax cuts are set to expire on January 1. On that date, Americans will suffer the single largest tax increase in the nation’s history unless Congress and the White House intervene.
For their part, Obama and his Treasury Secretary Timothy Geithner – who had difficulty paying the same taxes he wants others to pay – claim that they want to maintain the lower tax rates for earners under $200,000, but allow taxes to rise for filers over that threshold.
Here’s the irony: Obama and Geithner suggest that we cannot afford to increase taxes on the middle class during this period of economic difficulty. Yet somehow, it’s harmless in their minds to raise taxes on the income segment that accounts for an even greater share of consumer spending?
Here’s another irony: Obama, Geithner and others on the left also claim that the American economy is weak enough to necessitate another “stimulus” atop the failed $1 trillion they’ve already wasted. Yet somehow, the economy is nevertheless strong enough to increase taxes on the very category that disproportionately propels that same economy?
The liberals’ cynical gamble is that the American electorate will buy their “soak the rich” agenda. Between that and “George Bush did it,” they don’t seem to possess many alternatives. But there are a few other worrisome facts they should consider.
First, the Obama Administration’s claim that the 2001 and 2003 tax cuts somehow created budget deficits is simply nonsense. Incoming federal revenues actually increased some 44% between 2003 and 2007, transcending historical averages to reach 18.5% of gross domestic product (GDP). Incoming federal revenues, in fact, reached their all-time high in 2007. The problem wasn’t with tax scarcity, but even higher rates of government spending growth. Of course, Obama, Pelosi and Reid have injected steroids into that spending growth.
Regardless, to ascribe the deficit to depleted revenues and tax cuts is either dishonest or ignorant.
Here’s an even more alarming reality. Many small businesses, which create most new jobs in America, file taxes as “individuals” under our tax code for various technical reasons. According to IRS data, most small business profits fall within tax brackets exceeding $200,000. In 2008, 30 million small businesses reported a cumulative net profit of $631 billion. Approximately 75% of that income - $457 billion – fell within the over-$200,000 tax segment.
That’s not the end of the story regarding small businesses, however. In 2008, according to the IRS, 22 million sole proprietorships reported total profits of $264 billion. Some $90 billion of that – over one-third – was taxed at the over-$200,000 individual rate. Furthermore, 8 million partnerships that file under subchapter S of the tax code reported $367 billion in net profits in 2008, almost all of which was taxed at the individual rate over $200,000.
In other words, a large majority of small business income is subject to the Obama Administration’s demonization campaign against “the rich.” When that income increasingly shifts on January 1 toward federal bureaucracies and Obama’s effort to “spread the wealth around,” does any serious person doubt the negative impact on hiring, investment and small business growth?
We must cultivate consumer spending and small business income, not impair them. Unfortunately, Obama, Pelosi and Reid are desperate to save their Congressional majorities. Economic reality and honesty apparently take a back seat to their campaign of demonization and divisiveness.
On a positive note, even notable Democrats are beginning to break ranks. Senators Ben Nelson (D – Nebraska), Evan Bayh (D – Indiana) and even Kent Conrad (D – North Dakota) express concern about “raising taxes in the midst of a downturn.”
Perhaps these Democratic leaders can catch Obama between daytime television appearances and golf outings to explain that he would be better served by a healthier economy than by his class warfare agenda.
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