Obama and the Pirates

Obama and the Pirates
February 17, 2013

Peter Ferrara

Peter Ferrara is senior fellow for entitlement and budget policy at The Heartland Institute, a... (read full bio)

Everything in this column will be established by logical proof, as in geometry. There will be no name calling, or mere assertion.

You probably heard again the other night in his State of the Union Address that President Obama still thinks “the rich,” a crass term implying low class social envy, do not pay their “fair share.” He has been barnstorming America saying precisely that for his more than four years in office now. But the indisputable facts from official government sources say otherwise.

Internal Revenue Service (IRS) data, compiled from income tax returns, as reported by the Congressional Budget Office (CBO) shows that in 2009 the top 1% of income earners paid 39% of all federal income taxes. That was three times their share of national income at 13%. It was also more than double the 17.6% of federal individual income taxes paid by the top 1% when President Reagan entered office in 1981, and all the historic tax rate cutting began.

Yet, the IRS data also shows that in 2009 the middle class, as represented by the middle 20% of income earners, paid just 2.7% of all federal income taxes as a group on net, while earning 15% of the national income. As a result, the top 1% paid almost 15 times as much in federal income taxes as the entire middle 20%, even though the middle 20% earned more income.

And this was before all the tax rate increases on “the rich” at the beginning of this year. With the expiration of the Bush tax cuts only for “the rich,” and the Obamacare tax increases going into effect, top federal income tax rates on the rich rose nearly 20%, the tax rate on capital gains rose nearly 60%, the tax rate on dividends rose nearly 60%, the Medicare payroll tax rate rose 62%, and the death tax was permanently restored.

Moreover, the bottom 40% of income earners as a group on net, instead of paying some taxes to support government programs, services and benefits, were paid cash by the IRS in 2009 equal to 10% of all federal income taxes that year.

The official IRS data also shows that in 2009 the top 20% of income earners, which included those earning more than $74,000, paid 94% of federal individual income taxes. That was 85% more than the share of national income they earned, almost double. The selfish bastards in that top 20% earned just over half of all the income in the country at 51%. Is it fair that they earn so much more than the bottom 20%, which earned almost nothing? Well, I guess that’s what happens when the top 20% includes nearly 6 times as many full time workers as the bottom 20%.

Marxist Principles
Any normal American would say that such an income tax system is more than fair, or that “the rich” actually pay more than their fair share. So what is wrong with President Obama? Why does he keep saying that the rich do not pay their fair share? Is he ignorant? Wouldn’t somebody in his Administration tell him that his own Administration’s data show otherwise?

President Obama’s belief that “the rich” still do not pay their fair share can only be explained on the basis of Marxist principles. To a Marxist, the top 1% earning anything more than the middle class is not fair, no matter how they earned it, fairly or not. So “the rich” are not paying their fair share as long as they are left with more than they “need,” as in a true communist system. This is the only logical explanation of Obama’s rhetoric, and it is fully consistent with Obama’s entire background, and his own published writings.

Notice that Obama kept saying that “the rich” don’t need the Bush tax cuts. That rhetoric follows the most basic Marxist principle, “From each according to his ability, to each according to his need.”

For anyone who insists that Obama is only a liberal, and not a Marxist, what is your explanation of why Obama persists in saying that “the rich” do not pay their fair share, in the face of the overwhelming official data to the contrary? Are you saying he is stupid? The best that can be said for Obama is that anyone who thinks we should increase federal income taxes on “the rich” still more is maybe a pirate rather than a Marxist. Perhaps the Obama logo should be replaced by a skull and crossbones, with a tricorner pirate hat on top.

Bad Karma for the Middle Class, Working People, and the Poor
Good tax policy is guided by what is necessary to maximize economic growth, not by what individual taxpayers may “need.” The middle class, working people and the poor benefit far more from economic growth than they ever could hope to from redistribution. That is proved by the entire 20th century, where the standard of living of American workers increased by more than 7 times, through sustained, rapid economic growth.

Workers could never have gained by 7 times by pirating still more from “the rich.” Raising all tax rates on savings and investment, as under President Obama’s tax policy, to increase government benefits for those not working, is a perfect formula for plummeting not increasing living standards. Savings and investment to create new businesses, or expand existing businesses, is the foundation for the creation of jobs. It is also the foundation for increasing wages and incomes for the middle class, working people, and the poor.

New capital equipment financed by new savings and investment increases the productivity of workers. Workers are far more productive with computerized, mechanized, steam shovels, for example, than with mere hand shovels. That increased productivity provides the funds to pay workers more. The increased demand for labor resulting from that increased savings and investment also bids up the wages of working people to the level of their productivity. This just shows that under capitalism, capital and labor are complementary, not adversarial, exactly contrary to the misunderstanding of Marxists.

Increasing marginal tax rates on savings and investment, however, will mean less of it, not more. The result will be fewer jobs, and lower wages, which is just what we have experienced so far under President Obama. During Obama’s first term, unemployment was over 8% and above for the longest period since the Great Depression, and that only begins to illustrate the Obama unemployment crisis. Moreover, despite all of Obama’s rhetoric championing the middle class, median household incomes declined by 7.3% (a month’s worth of wages) during his first term, even faster after the recession supposedly ended in 2009.

And increasing benefits for not working only pays people more for not working and not contributing to the economy. All of this will only get worse in Obama’s unearned second term. The long-term result will be economic stagnation, not rapidly increasing living standards, as in all the countries that Obama admires and wants America to follow.

The American people used to know all of this, which is why they never voted for redistribution over economic growth in the past, whenever they were given a well-articulated choice.

The Mentally Feeble Left
The Left’s big counterargument to these demonstrated facts is that they only cover the federal income tax. They don’t count the Social Security and Medicare payroll tax, which all working people pay of at all income levels, and which the rich do not pay on all of their income, like most workers.

But it is the federal income tax that President Obama has been arguing should be increased because the rich don’t pay their fair share, not payroll taxes. So it is reasonable and relevant to look at what share of federal income taxes “the rich” are already paying.

Moreover, the Left is again grievously in error in thinking the maximum taxable income for the Social Security payroll tax of $113,700 is a loophole for the rich. Social Security benefits are calculated based on the worker’s income history. Only the income on which the worker paid taxes is counted.

So the limit is not an unfair loophole. Workers don’t pay taxes on income above the limit, but they don’t get benefits for that income either. That is because Social Security is a contributory program that only replaces a floor of wage income in retirement. Once your retirement income is above that floor, there is no good reason to force taxpayers to pay more for higher benefits. That is especially because Social Security pays such poor, below market returns on tax payments into the program, actually negative real returns for higher income workers. So why force a worker to pay more for a negative real rate of return. It doesn’t help to close the long run Social Security deficit, because more benefits would be owed in the future in return.

But let’s humor the little communists, and look at the relative shares paid for all federal taxes. Again according to official IRS data, in 2009 the top 1% paid over 22% of all federal taxes, while earning 13% of the income. That is down under Obama from the nearly 27% of all federal taxes paid by the top 1% achieved by Reaganomics in 2007.

President Obama also continues to promote the illiterate false narrative that the rich pay lower tax rates than the middle class, along with his trained seal sidekick Warren Buffett. But the IRS again reports that in 2009 the top 20% paid nearly 70% of all federal taxes, while earning 50% of the income. The middle 20%, the true middle class, paid 9% of federal taxes, compared to their 15% share of income. The top 1% alone paid well over twice the total federal taxes as the entire middle 20%, while earning less in income. The bottom 20% paid 0.3% of all federal taxes.

America’s Marxist Party
But it is not just Barack Obama. It is the entire Democrat party that has been taken over by Marxists.

Obama represents the heart and soul of the Democrats, whose enthusiasts wear Che Guevara T-shirts sold at their major gatherings. Look at Nancy Pelosi, just as zanily ultraleft as Obama, reelected as Democrat House leader, right after the voters punished House Democrats with a New Deal size 63-seat loss in 2010. Pelosi makes Sarah Palin look like a rocket scientist when she tells us that unemployment insurance benefits are one of the most effective pro-growth policies possible. Why not put everyone on permanent unemployment benefits then? What a tragedy it is then when someone gets a job and gets off unemployment benefits.

The reelection of Pelosi to this post was considered by the Democrats to be fair punishment of the stupid voters who made the grievous mistake in 2010 in voting to restore the Republicans to the House majority. Punishment it was.

Or listen to Minnesota Democrat Congressman Keith Ellison talk about how fair it is for 63% of the income of professional golfer Phil Mickelson to be seized in taxes. Ellison already campaigns in a tricorner pirate hat. Or listen to openly communist Democrat Congressman Alan Grayson from Orlando.

This and more is what your friends and neighbors are contributing to and voting for when they support the Democrat party. They are effectively engaged in a personal assault on you and your family, or at least on your freedom and prosperity, in attempting to turn this most prosperous and successful country in world history into just another banana republic.

[First published at the American Spectator.]

Peter Ferrara

Peter Ferrara is senior fellow for entitlement and budget policy at The Heartland Institute, a... (read full bio)