Obama's Slow Growth Policies Have Stacked The Deck Against American Workers

Obama's Slow Growth Policies Have Stacked The Deck Against American Workers
December 28, 2013

Peter Ferrara

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

President Obama told us in his December 4 economic coming out speech on inequality, which the Huffington Post called the most important speech of his presidency:

But we know that people’s frustrations run deeper than these most recent political battles. Their frustration is rooted in their own daily battles – to make ends meet, to pay for college, buy a home, save for retirement. It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them. And it is rooted in the fear that their kids won’t be better off than they were.

That fear is well justified. Because without economic growth, their kids will not be better off than they were. And without economic growth, no matter how hard they work, they won’t get ahead. The fundamental problem was shown in the rest of President Obama’s economic inequality speech.

He did not seriously advance one idea or measure that would do anything significant to increase economic growth anytime soon. Everything he promoted to address the problem was anti-growth – more taxes, government spending, and regulation. Just like everything he has done in his entire presidency. Which is why his economic growth record has been so poor, poverty has soared, middle class incomes have plummeted, and inequality has accelerated, under his policies. And that won’t change until his policies change. But instead he just keeps moving farther and farther left, as in this speech.

Obama added, in explaining where America went wrong:

Sstarting in the late 1970s, this social compact began to unravel. . . . As trickle down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither.

So-called Progressives like to talk in code words, because they know if they told the American people what they were really thinking, they would never get elected. But the only economics that can accurately be called “trickle down” is the notion that increased government spending increases economic growth. Just the opposite is more nearly true.

A new report out this month from CBO addresses the very tired rant that “taxes were slashed for the wealthiest.” It shows that the top 1% of income earners produce 14.9% of before tax income, but pay 39% of federal income taxes. They also bear 49.5% of federal corporate income taxes.

Just the top 5% pay nearly two-thirds of all federal income taxes, at 63.6%, while producing just 27.4% of before tax income. And their share of corporate income taxes is virtually the same at 63.2%. The top 10% pay 77.4% of federal income taxes, over three fourths, while producing only 37.3% of before tax income, just over one-third. The top 20% carry virtually the whole load for the rest, paying 93% of total federal income taxes, almost twice the share of before tax income they produce, at 52%.

The middle 20%, who Obama is preaching to that the deck is stacked against them, pay just 2.9% of federal income taxes, while earning 14.2% of before tax income. The bottom 40% as a group on net pay less than nothing in federal income taxes, instead receiving cash payments from the IRS.

This is the most “progressive” income tax code in the world today, as befits the world’s now leading socialist country. Russia, by contrast, has a 13% flat tax, on the road to reverse places with the United States. America’s economy behaves now like it has a debilitating disease, which it does, called “Progressivism.”

CBO does not come out and say the rich pay more than their fair share, because CBO does not make “fairness” judgments. But the data CBO presents above shows precisely that. So President Obama, who has been telling us the opposite ever since he first showed up on the national stage, has got it wrong again, just as he got everything wrong in regard to Obamacare. No wonder the American economy is sick. You can call it the sick man of the global economy.

The Left will complain that the above data is only for federal income taxes, and does not include federal payroll taxes, for which the “wealthiest” pay a lesser share. But it is federal income taxes that Obama is complaining were “slashed for the wealthiest.” There were income tax cuts after the 1970s, where Obama said America went wrong, but not payroll tax cuts.

But even in regard to federal payroll taxes, the top 20% still pay 45%, the most of any other quintile by far. The middle 20% pay 15.4%, which is proportional to their share of income relative to the higher income earners. The bottom 20% pay just 5.6% of payroll taxes.

Moreover, the reason the highest income earners pay a smaller percentage of total payroll taxes is that the Social Security payroll tax is subject to a maximum annual taxable income limit every year, which is $117,000 for 2014. What the critics are missing is that the maximum annual taxable income limit is not a loophole. Social Security benefits are based on the amount of income that is subject to Social Security taxes. While higher income workers in 2014 will not pay Social Security payroll taxes on income above $117,000, income above that limit will also not be counted in calculating Social Security benefits.

That makes sense for a social insurance program like Social Security which is supposed to provide a floor for retirement income, not all retirement income. Once the “insurance” providing that floor is paid for, there is no sense in requiring anyone to pay more. When you go to the store to buy your Christmas turkey, you don’t pay more based on your income. Social Security is very much like that, because it does not provide a good return on dollar investment. So it is counterproductive to require taxpayers to pay for more above the safety net floor, when they can earn more retirement income from standard private sector investments, a lot more actually.

The CBO data also rebuts the Buffett/Obama Snow Job that the middle class pays higher tax rates than the rich. Buffett claimed that his Secretary pays a higher federal tax rate than he does. That is actually because in his case Buffett runs effectively the biggest tax shelter in the world in Berkshire Hathaway. And he would be in hog heaven for tax rates outside of his shelter to be increased. So he is in on the Snow Job.

But the CBO data shows that the average federal tax rate for the top 1% is 29.4%, while the average federal tax rate for the middle 20% is 11.5%, and the average federal tax rate for the bottom 20% is 1.5%. That is more than fair, except that the highest rates are cratering capital investment, which means fewer jobs and lower wages for the middle class and the poor. That is what is not fair for the middle class and the poor. But don’t expect Barack Obama to understand that. His Marxist mentors growing up never understood that themselves.

Obama was also wrong when he complained in his economic inequality whine, “The top 10% no longer takes in one-third of our income – it now takes half.” Actually they don’t “take” anything. “Take” is a government thing. People voluntarily pay the top 10% what they earn because those paying think what the top 10% do for it is worth it. And the CBO data shows that what the top 10% is voluntarily paid for their productive actions is 37.3% of before tax income, a lot lot closer to one third than to one half. All of Obama’s other statistics are equally dubious.

Because Barack Obama understands little about economics (when he steps to the podium to speak, it is time to cringe, because he often knows less about the subject than anyone in the room), the proposals he makes in his speech to address inequality, touted by the Huffington Post as the agenda for the rest of his second term, are pitiful as elixers to promote economic growth, and to reduce rather than further increase inequality.

He calls for more investment in education. But despite his false claim that education spending has withered since the 1970s, America spends more on education, and on education per child, than ever before, and more than just about every other nation on Earth. What is needed is not more taxes and spending, but education reform, involving choice and competition. But it is Obama’s union political allies standing in the schoolhouse door today preventing that from happening.

Increasing the minimum wage is ultimately not going to reduce inequality significantly either. It can’t, when it actually bars the most unskilled from working at all. That is just going to further increase inequality. Nor is the further regulation involved in a “strong application of anti-discrimination laws” going to create booming economic growth, or significantly reduce inequality across the economy.

Obama offers more pro-union regulation as a remedy. But more union power would not contribute to increased economic production. More likely it would force the opposite, as it so often has. Unions have not increased compensation to working people across the board. Rather, they have redistributed income from non-union workers to union workers, as they increase wages for their members by excluding competition from non-union workers.

Obama quite rightly says:

Wwe can’t tackle inequality if the economic pie is shrinking or stagnant. The fact is if you are a progressive and you want to help the middle class and the working poor, you’ve still got to be concerned about competitiveness and productivity and business confidence. And that’s why from day one we’ve worked to get the economy growing and help our businesses hire.

But you are not going to “get the economy growing and help our businesses hire” from increasing tax rates, especially on capital, increasing regulatory burdens, increasing government spending draining capital from the private sector, and wild-eyed monetary policy resulting in near zero compensation for lending, and constantly threatening to destabilize the currency. That is why the economic results Obama has gotten have been the opposite of what he says he wants.

While Obama complains about the sequester, that only seems to have accelerated economic growth, again exactly the opposite of what he said it would do. “High quality pre-school” would just be another bailout to Obama’s union political allies, not the progenitor of an economic boom. “Promise Zones” are also not going to stimulate growth if they are just going to involve more focused government in targeted local areas, rather than removal of government barriers to economic growth, like taxes, regulatory burdens and barriers, government spending, and debauched currency.

And noting Obamacare as another pro-growth initiative is just another snow job. For everything about Obamacare is anti-growth — increased taxes, increased regulation, increased government spending. Obamacare is why most new jobs this year have been part-time jobs, not the good, high paying jobs for the middle class that Obama’s sweet snow job rhetoric calls for. The only effect of Obamacare so far has been the opposite of universal coverage, increasing the number of uninsured. Instead of reducing costs, it has increased costs. I have personally done more to reduce health costs through helping the development and initiation of Health Savings Accounts, that have now grown to cover 30 million Americans, reducing the growth of health costs all along, just as we said it would. As the Bible says, by their fruits you shall know them.

What a pitiful gruel that Obama agenda is for producing economic growth and prosperity for all, like we got under Reagan, where incomes rose smartly for every quintile, from the poor to the rich, not just for Washington’s crony capitalists in the top 20%. As Henry R. Nau explained in the January 26, 2012 Wall Street Journal:

Tthe U.S. grew by more than 3% per year [in real terms] from 1980 to 2007, and created more than 50 million new jobs, massively expanding a middle class of working women, African-Americans and legal as well as illegal immigrants. Per capita income increased by 65%, and household income went up substantially in all income categories.

Obama did talk about some things in his speech that would work to promote economic growth and broad prosperity. Corporate tax reform that lowers rates while broadening the base would work powerfully. But Obama has done nothing to promote such reform beyond mere talk. Instead he has shown more interest in broadening the base to increase taxes, rather than reduce rates, which has been a barrier to the bipartisan tax reform that would be so readily achievable in Washington, if Obama would just get out of town. Freer trade that grows exports would also work, but Obama only squelches that as well with his rhetoric implying that free trade does not work for the middle class. “Streamlining regulations that are outdated or unnecessary or too costly” would work too. But Obama has consistently done just the opposite, imposing regulations that are precisely outdated, unnecessary or too costly. More Snow Job.

In this Christmas season, let us raise our voices to the Lord, and pray, dear God, please free us from Obama’s economic oppression, and restore to us the economic liberation of our heritage, and of the American Dream. Before the formerly world leading American economy ends up as just one big Hunger Game.

[First published at Forbes.]

Peter Ferrara

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