For anyone who thinks that agreeing to more taxes is the answer to the nation’s fiscal problems, just look at what President Obama has proposed.

Tweet

Ever heard of “bracket creep”? 

It’s the scourge of middle-class families, and one of the favorite weapons of tax-and-spend liberals. 

Just ask Barack Obama.  On his Midwestern bus tour this week, the president hammered Republican presidential candidates for pledging not to raise taxes if elected.  In his view, the way to achieve a “balanced” debt reduction is to cut federal spending and raise taxes on Americans making more than $200,000 a year. 

Obama agrees with his billionaire investor friend Warren Buffet that the rich need to “share the sacrifice” of a retracting economy.  The implication, of course, is that everyone making less than $200,000 a year won’t pay any new taxes if Obama’s plan goes through. 

Who are these “rich” people that need to pay their “fair share”?  By and large the people that fall into this tax bracket are parents of middle class families with multiple responsibilities.  While $200,000 may sound like a lot of money to a community organizer picketing alongside union members, it’s barely enough to afford a house, send kids to college and drive two cars. 

True, $200,000 used to buy a comfortable living almost anywhere in the country.  However, that was before Congress passed the Minimum Tax and Alternative Minimum Tax rates without indexing them for inflation. 

In 1969, Congress passed the Minimum Tax to capture a greater percentage of tax income from America’s wealthiest citizens.  Like all tax hikes, it was sold as making the rich pay their fair share.  There was one major problem: The tax rate was not indexed for inflation.  Neither was its 1982 successor, the Alternative Minimum Tax. 

One way to think of inflation is when the cost (but not the value) of living goes up.  Thus, people need to make more money just to maintain their standard of living. 

So, what happened when the Alternative Minimum Tax set a threshold for big tax hikes that did not account for inflation?  Over time, millions of Americans became “rich” even though their standard of living did not improve.  The inflationary movement of income earners to higher tax thresholds is the definition of bracket creep. 

Back to Obama.  In 2008, he pushed the same kind of bait-and-switch with his $250,000 a year threshold.  Notice it’s a particular number, not a percentage of income.  Obama’s threshold doesn’t say that when $250,000 tomorrow is worth less than $250,000 today only the “rich” will be paying their fair share.  Obama’s tax works just like the Alternative Minimum Tax.

In fact, it’s worse because Obama’s tax threshold is falling faster than the AMT normally does. 

In 2008, Obama’s tax on making $250,000 was promoted as a way to fully fund the Social Security Trust Fund, which the federal government has raided for decades and filled with IOUs. 

In 2011, Obama wants to lower his threshold to $200,000 to capture more people and “pay for” a totally different problem: the woefully unbalanced federal budget.  (Technically, Social Security is considered “off budget” for deficit calculations.) 

What if Obama had gotten what he wanted in 2008?  Today, millions of Americans would have experienced skyrocketing tax burdens, Social Security might get cash but zero protection from being raided and the official budget deficit would still exist. 

For anyone who thinks that agreeing to more taxes is the answer to the nation’s fiscal problems, just look at what President Obama has proposed. 

In 2008, Obama wanted to tax the “rich” to “spread the wealth around.”  In 2011, he wants to force an even greater number of people to “share the sacrifice” of living in an America with a plunging stock market and a sovereign debt downgrade.  Whatever the fiscal question, the liberal answer is always to tax, in good times and in bad. 

When it comes to tax reform, two things to fear are inflationary brackets and the creeps that love them.