Monday, January 30, 2012

Blaming the Rich for Not Paying "Their Fair Share"

President Obama’s re-election campaign theme is to raise taxes on investment income to 30% for individuals and to 54.5% for corporations because he blames the rich for not paying “their fair share.” But this blame is misplaced and wrong at all levels of analysis.

First, the charge is not even true. Not only do the rich pay vastly more taxes than anybody else (the top 10% earners pay 70% of the federal tax revenue), but the rich pay the same rate as everybody else. Warren Buffet’s secretary pays 15% on investment income just as Buffet does. And he pays 30% on non-investment income, while she pays a lower rate because her income is lower and our tax system is “progressive.”

Second, middle-class wage earners commonly have investment income that they don’t pay any taxes on now, because the income is accruing tax deferred in pensions, 401 Ks and IRAs.

No matter rich or poor, investment income can be taxed three times, once on corporations before they distribute the income to their investors, again on the investors when they receive it, and yet again when investors pass on inheritance.

The President’s policy is especially unfair to retired people, most of whom rely on investment income and pensions that in turn rely on investment income.

Obama is unfair to corporations because the higher tax would diminish the capital they have for growth of their business and the number of workers they support. This is particularly onerous for start-up and small businesses which typically have a compelling need for capital. Since small businesses create most jobs, higher investment income tax kills jobs, which is yet another way it is unfair to individuals.

Obama is unfair to the government and the taxpayers as a whole, because economic data show that high investment income taxes actually yield less total tax revenue. In the face of such taxes, individuals invest less and thus starve business of capital for growth, and corporations move jobs overseas. So, in trying to punish the rich, the President would end up punishing everybody.

Finally, Obama is unfair to Congress and his fellow Democrats by beating up on them for a tax policy they have supported ever since 1978. As just explained, there are good reasons why both Democrats and Republicans have supported lower tax rates for investment income. Moreover, Obama is misleading the public into thinking that if re-elected he will get investment income tax rate raised to 30%. Not even the Democratic Senate will vote for that.

In short, President Obama doesn’t really care about being “fair.” This blame-game campaign theme is a cynical ploy to get unthinking voters to vote for him.

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