Obama Is Wrong About the Need to Raise Taxes

We need spending cuts, not tax hikes.

With a March 1 deadline looming for the imposition of the automatic spending cuts known as the sequester, President Obama and his allies in the press are stepping up their campaign for additional tax increases on the rich.

Obama said over the weekend that his plan “asks more of the wealthiest Americans,” and he said it looks like Republicans are “prepared to inflict more pain on the middle class because they refuse to ask anything more of those at the very top.” The president’s allies at The New York Times issued an editorial under the headline “Why Taxes Have to Go Up,” insisting, “To reduce the deficit in a weak economy, new taxes on high-income Americans are a matter of necessity and fairness.” 

Here are five reasons Obama and the Times are wrong about this. 

Taxes are already high. Californians this year face a combined federal-state income tax rate of 51.9 percent on earnings over $1 million, and upper-income New York City residents are taxed at a 51.7 percent combined city, state, and federal rate, a phenomenon that even the Times itself recognized earlier this month as front-page news. Government, in other words, is already taking more than half of every marginal dollar earned.

The Times editorial claims that “Even with recent increases, the new top rate of 39.6 percent is historically low.” It justifies that claim with a hyperlink to a table that says “Note: This table contains a number of simplifications and ignores a number of factors…Perhaps most importantly, it ignores the large increase in percentage of returns that were subject to this top rate.” That disclaimer isn’t mentioned in the Times editorial. Nor is the fact that, according to the table to which the Times links, in 1988 and 1989, the top rate was 28 percent, or that in 1990, 1991, and 1992 it was 31 percent. In addition, speaking of history, the Medicare payroll tax didn’t apply in the pre-Medicare days. America didn’t have an income tax at all, with rare wartime exceptions, until the Sixteenth Amendment was ratified in 1913.

Raising rates higher than current levels would be impractical. The higher rates would so encourage tax avoidance and discourage extra work that the returns in increased government revenue would start to diminish. Even John Maynard Keynes wrote that “25 percent taxation is about the limit of what is easily borne” and that “Aggressive taxation may defeat its own ends by diminishing the income to be taxed.” 

It’s also not moral. How can Obama justify taking for the government more than half of a dollar someone else has earned? That leads us to the next objection: 

Taxation without representation isn’t fair. It’s one thing for a group of individuals to associate themselves voluntarily and tax themselves to fund common services. But the more steeply progressive the tax code gets, and the greater share of taxation that is borne by a small, high-income minority, the more our tax system starts to look like what got Samuel Adams and company so riled up against George III and Parliament back in the 1760s and 1770s. Just as the British voted to fund their government by increasing taxes on the colonists rather than themselves, so the Americans who earn less than President Obama’s definition of rich voted to fund their government services by increasing income taxes on the rich rather than on themselves. One may object that the rich have plenty of representation by way of lobbyists, campaign contributions, and independent expenditures, and that a lot of the senators and congressmen are rich themselves. But we still have a one-person, one-vote system. 

The exit polls from the 2012 election showed that Mitt Romney won voters with family income from $50,000 to $99,999, by 52 percent to 46 percent. Romney won voters with family income of $100,000 to $199,999, by 54 percent to 44 percent, and voters with family income of $200,000 or more, 54 percent to 44 percent. The only income groups that President Obama won, according to the poll, were those with family income less than $30,000, which Mr. Obama won 62 percent to 35 percent, and those with family income $30,000 to $49,999, which Obama won 56 percent to 42 percent. You don’t have to be a Marxist political economist to observe that Obama is trying to impose a big tax increase on a lot of people who didn’t vote for him. At least those rich people got to vote, which is more than can be said for the colonists. But there’s something ugly about the whole thing.

Raising taxes hurts growth. Slower growth makes the deficit bigger, not smaller. The best thing for tax revenues, for the deficit problem, and for America overall would be robust economic growth. But the government reported negative real economic growth for the fourth quarter of 2012, and there are some signs that the payroll and income tax increases that took effect in January 2013 are already inflicting more damage. Why slow an already sluggish economy by increasing taxes even more? Don’t just take it from me; even Paul Krugman, the Nobel Laureate New York Times columnist, once wrote, “High marginal tax rates can hurt economic growth.”

The problem isn’t taxes, it’s spending (and the dollar, which hardly anyone talks about). The Times editorial disputes this, contending, “Contrary to Mr. Boehner’s ‘spending problem’ claim, much of the deficit in the next 10 years can be chalked up to chronic revenue shortfalls from the Bush-era tax cuts… a deficit caused partly by inadequate revenue must be corrected in part by new taxes.” Yet that’s nonsense. Washington is awash in revenue. President Obama’s own Office of Management and Budget reports that tax revenue in 2011 was $2.3 trillion. That’s about $275 billion more than the $2.025 trillion that arrived in 2000, before President George W. Bush was even inaugurated. 

No, the problem isn’t on the revenue side. It is on the spending side; the federal government spent $3.6 trillion in 2011, about $1.8 trillion more than the roughly $1.8 trillion it spent in 2000. In other words, federal spending doubled in about a decade. Tax revenue grew more than 10 percent, but that wasn’t enough to keep pace with the spending. 

If there’s a revenue shortfall or if the comparisons seem strange, it may have something to do with the fact that today’s dollars are worth less than they were worth in 2000. Now there would be a fine topic for some congressional or presidential leadership, but the politicians, alas, seem to prefer the current set-up, under which they can deflect responsibility toward the “independent” Federal Reserve. 

The tax-raising isn’t going to stop with the rich. Tax increases on the rich are just the first step. When President Obama tells you he just wants to raise taxes on the rich, he’s fibbing. He’s already raised taxes on cigarettes and tanning salons, and he raised the payroll tax on everyone at the beginning of this year. At least The New York Times, unlike Obama, is forthright about its goals; the Times editorial called additional tax increases on the rich “a necessary precondition to what in time will have to be tax increases on the middle class,” asserting, “more taxes will be needed from further down the income scale.” Likewise, the Center on Budget and Policy Priorities, in a paper linked to by the Times editorial, says of the Bush tax cuts: “Letting those tax cuts lapse on schedule — for everybody, not just for people with incomes over $200,000 for an individual or $250,000 for a couple — would put deficits and debt on a sustainable path.”

Republicans would be in a stronger position to fight now if some of their leaders in Congress had not, in early January, provided President Obama with votes he needed to raise tax rates in 2013 from the levels they had been at in 2012. After all, if voters think both Republicans and Democrats are going to raise taxes, they might as well decide based on other issues. If the Republicans cave again this time around, they risk losing credibility on the tax issue for another election cycle.

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  • Gilbert Martin||

    And reason # 6 is that already HAS BEEN a tax increase enacted on "the rich" very recently.

    Now Obama wants even more on top of that.

  • Johnny||

    just as Alan implied I am in shock that any body can profit $6783 in a few weeks on the computer. did you read this web page... http://www.youtube.com.qr.net/kaaS

  • XM||

    If the Republicans would be stronger position now if those earning less than 30 thou a year didn't give Obama the greatest mandate to go on a spending spree since every other white president.

    And Obama didn't raise payroll taxes. He merely ended a two year tax holiday. This is a very important distinction we have to make, for some reason.

    How will gays get married and perform in Broadway shows if Obama's tax policies drive them out business?

  • Murgatroyd||

    Tax increases just become the new standard tax rate...

    Tax cuts are always temporary holidays...

  • EnemyOfTheState||

    No, no, no!!! There is no such thing as a 'tax cut', only raising taxes on the rich and increased expenditures.

  • Murgatroyd||

    Tax increases on the rich are just the first step. When President Obama tells you he just wants to raise taxes on the rich, he’s fibbing.

    Yes, it was obvious that the rhetoric on raising taxes on the rich during the "Fiscal Cliff" was largely a cover for ending the payroll taxes. The situation is similar to the proposals for the Assault Weapons Ban - banning AR15s, like raising taxes on the rich, is simply one step towards the larger goal of banning all guns and raising everyone's taxes. Not surprising, given that the same people are behind both agendas...

  • Mizchief||

    The bill on the table already goes after mag fed pistols and shotguns that bottom feed.

  • Capt Ace Rimmer||

    Deficit spending is a tax increase.

  • GregMax||

    Government induced inflation is a tax increase.

    How can these knuckleheads argue that the more of the product the government seizes the better off our economy will be? If you cut the size of all government by 50% over four years . . . after adjusting for all the out of work government workers . . . the economy would swell like Obama's ego after winning an election.

    It is truly puzzling how so many people can be so freaking ignorant about the effects of government on our economy and our culture.

  • Rob||

    If you cut the size of all government by 50% over four years [...] the economy would swell....

    Not necessarily. The whole of the U.S. economy is inflated by debt. In 2012 the U.S. government alone spent about $1.4 trillion of borrowed money. This government borrowed money accounted for 8% of GDP in 2012.

    You can't stop government borrowing and expect an immediate boom in the economy - it just won't happen. Even after the initial shock there is still a $16 trillion mountain of debt needing to be repaid. It will take a long time to repay 80+ years of unchecked borrowing, and deleveraging $16 trillion of malinvestment will be a painful process.

  • GregMax||

    That makes the present course even more frightening.

  • CE||

    ...there is still a $16 trillion mountain of debt needing to be repaid.

    No, there's 16 trillion that someone promised to repay, with future stolen money. The whole scheme was illegal from the start, so the contract is unenforceable.

  • Mizchief||

    Makes me think that Obama's spending makes sense but not for reasons he could ever mention. Knowing that we will never pay back that debt, you might as well run up the credit card and buy up as many bullets, assault rifles, and build as many FEMA camps as you can before people stop lining up to buy US bonds and stop using the dollar to buy oil and fill their reserve banks.

  • Rasilio||

    That is just the federal component, the total debt level across all economic sectors (government at all levels, not just federal, personal debt, corporate debt, and financial sector debt) is closer to $85 trillion.

    Obviously you do not need to deleverage the entire pile, even 1/2 of it would probably be sufficient but that still means $42 trillion of debt to pay down in an economy of just $16 trillion which is going to take multiple decades

  • Rob||

    Agreed. I was just pointing out to GregMax, the economy wouldn't shift into high growth just because we stopped adding more debt. It's more likely there would be an immediate and deep - but short lived - recession, followed by a long period of slow growth.

    This of course assumes a few very unlikely things would happen:
    1. The government refrains from trying to "fix" the economy.
    2. No deficit spending.
    3. Dedicating a percentage of tax receipts solely to debt repayment.
    4. Prioritization of needs over wants, and the wisdom to know the difference.
    5. Real leadership.

    It should be fairly evident none of the items above are reasonable expectations. The voting public has wants, and fulfilling those wants buys votes. From there it's a short step to borrowing in order to acquire more votes.

    It's a sad cycle, and I don't see much hope for escape short of the whole system crashing down.

  • StackOfCoins||

    It seems a lot of people, both people ignorant of the government and bleeding-heart progs, believe that govt is magical, and every dollar they take is multiplied into many more dollars. As if they generate wealth or something.

  • Xenocles||

    I just want to go on the record and say that I support the DC citizens' struggle against taxation without representation. I join them in their campaign to eliminate taxes within the District.

  • OldMexican||

    The New York Times issued an editorial under the headline "Why Taxes Have to Go Up," insisting, "To reduce the deficit in a weak economy, new taxes on high-income Americans are a matter of necessity and fairness."


    I would have to guess that the editorial board of the New York Times thinks that discouraging people from getting rich is a matter of necessity and fairness. Government raises taxes on those things it want to discourage (like smoking) and subsidizes those things it wants to encourage, like green energy. So it is clear government (and the NYT) want to discourage people from getting rich.

    And that is supposed to be fair.

  • wareagle||

    Government raises taxes on those things it want to discourage (like smoking) and subsidizes those things it wants to encourage, like green energy. So it is clear government (and the NYT) want to discourage people from getting rich.
    -------------

    and yet, mention that to a liberal and watch heads explode.

  • OldMexican||

    Re: wareagle,

    and yet, mention that to a liberal and watch heads explode.


    Those that realize the contradiction, yes. But those that are committed to the State like one is committed to The Church of Scientology, will find a way to rationalize it. My sister, for instance - she will simply dismiss the contradiction with the usual and Tony-esque Special Pleading arguments and platitudes, the same kind that allows people of her ilk to argue that medical care is a good which is, somehow, not subjected to the Law of Scarcity and the Law of Demand.

  • OldMexican||

    [...] the Times editorial called additional tax increases on the rich "a necessary precondition to what in time will have to be tax increases on the middle class,"


    Well, they're saying nothing new, and if people really bought the canard that the Obama admin was looking only to "stick it to the rich," they were as gullible as they were stupid. A lot of people are going to be bamboozled by this administration and will suffer accordingly; like I told Shrieky, don't expect any sympathy from me.

  • OldMexican||

    If the Republicans cave again this time around, they risk losing credibility on the tax issue for another election cycle[...]


    I can only hope, because what remains of the Republican party should be left to rot and wither, otherwise Dem-agogues will continue to have the convenient scapegoat for their own economics-ignorant mistakes. The faster we can get to the Great Default without leaving any straw for the left to grasp, the better. Once the government becomes incapable of even collecting its own revenue (like in Detroit), Americans will finally be able to free themselves from its clutches.

  • DarrenM||

    Don’t just take it from me; even Paul Krugman, the Nobel Laureate New York Times columnist, once wrote, “High marginal tax rates can hurt economic growth.”

    Yes, but his idea of 'high marginal tax rates' is about 110% (give or take).

  • DarrenM||

    "Taxation without representation" is borrowing trillions of dollars today and unloading the payments off on future generations.

  • OldMexican||

    How can Obama justify taking for the government more than half of a dollar someone else has earned?


    He can with a "Fuck you! That's why!"

  • Sevo||

    "Obama Is Wrong"
    Pretty sure that covers it.

  • CE||

    The Democrats keep telling us how great the economy was under Clinton. Why not just return to Clinton-era spending levels, about 50 percent of what the FedGov spends now?

  • AdamJ||

    Yep. Been saying that for two years now. Spread that message any time a prog brings up higher rates under Clinton.

  • Sevo||

    OT:
    "Zero-tolerance bill targets drivers on drugs"
    "...law enforcement groups say a zero-tolerance approach to drugs in a driver's system would help prosecutors to convict people caught driving under the influence."
    Read more: http://www.sfgate.com/news/art.....z2Lxq4lPQA

    See, it's not about whether you present any real danger, it's about getting convictions!

  • Raven Nation||

    NYT editorial: "much of the deficit in the next 10 years can be chalked up to chronic revenue shortfalls from the Bush-era tax cuts."

    Not true. Revenues dipped the first year of the tax cuts, then went back to where they were, they went up. Revenues in 2008 were 25% higher than in 2001.

    Start here:

    http://www.usgovernmentrevenue.....Srf_13rs1n

  • RightNut||

    Its 11:30, do you know where your T O N Y is?

  • desosa||

    as Philip responded I'm dazzled that a person able to earn $6558 in one month on the internet. did you see this site (go to tech tab)
    WOW92.COM

  • Firstname||

    With a government debt of over 84% of the entire US GDP I would say cutting back is WAY overdue. http://chartsbin.com/view/2108

  • Duke||

    What does "high income" even mean? My wife and I paid $100,000 in fed and state taxes for 2012 and we are far from being rich. We both still have student loans and rent a shitty apartment. We are saving everything after taxes but to what effect? Under our country's generous zero interest rate policy savings don't pay. Fuck this government up the butt.

  • ||

    I think there is truth in all stated points. Could not agree more. And yet to me a shocker is that I found this TITLE and link featured on(gulp)GoogleNews! Something of a jailbreak!

  • ToSeek||

    "he raised the payroll tax on everyone at the beginning of this year."

    This is not accurate. The payroll tax was temporarily cut as part of the financial stimulus, and the short-term cut was allowed to expire. The payroll tax is now the same as it was in the Bush administration.

  • Rob||

    This is not accurate.

    Care to explain? On January 1, 2013 the payroll tax increased from 4.2% to 6.2%. You don't consider that an increase?

  • Certified Financial Advisor||

    Yes I do agree with you, there is nothing change in payroll tax, it is same as it was at time of Bust....
    Certified Financial Planner

  • dbobway||

    When will all this BS on raising taxes be about increasing revenue!

    Revenue fell off a cliff between 2008 and 2009. 5 trillion dollar drop from the highest revenue in our countries history. Both years with the same tax laws.

    First send 15 million people home and out of work. Make the job market hopeless thru regulation and punishing job creators by taxing progress.

    Create a larger class of people who must depend on the govt' to live. That makes them easier to control thru oppression and a hopeless future.

    When are we going to start talking about increasing revenue?

  • grey||

    Actually, the only revenue I'd like to talk about increasing is my own. I'd like to first increase my revenue by decreasing government taxation on my production. But government must reduce it's own spending for my revenue to increase. So there is no discussion to be had about government 'revenue' other than how to reduce it. Besides, we should stop calling it revenue, it is just taxes or tax receipts. Revenue is something produced in trade not something stolen. I don't get revenue from pilfering my neighbors bank account.

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