July 15, 2012

Why The “Tax The Rich” Diversion? “It’s The Election Stupid!”

by Hal Gershowitz

Comments Below

The Obama tax-the-rich campaign strategy is simply a grand diversion from the nation’s badly sputtering economy and from his failure to effectively do much about it.  It is also an exercise in sophism designed to draw attention away from his own disingenuous assurances that: (1) he was going to cut the deficit in half during his first term; (2) he would not raise taxes on the middle class; (3) he would reduce (wasteful) government spending; (4) he would veto the healthcare bill “if it increased the deficit by one dime” and (5) his healthcare plan would allow everyone who liked their health insurance plans to keep them.  Remember these were not exaggerated promises of a presidential candidate, but rather the pledges of the President of the United States.

We’ll get to that strategic diversion in a moment, but as we have stated on numerous occasions in these essays, economic growth should be this Administration’s primary domestic objective.  The economy is teetering dangerously close to renewed recession.  The President does not want voters focusing on the economy so he has invited voters on a wild goose chase to snare all fat cats (individuals who earn over $200,000 or families that earn over $250,000) who he says are not paying their fair share.

Jolting the economy back into healthy growth is the only thing that will save the country from years of stagnation, if not contraction, along with the certain misery that will accompany such economic backsliding.  Pursuing a strategy to raise taxes on anyone at this time of economic stress is, in our judgment, ill advised and antithetical to economic growth.

That’s a judgment shared by Obama’s own Deficit and Debt Reduction Commission Co‑Chairs Simpson and Bowles, and many leading economists. It’s also the judgment of former President Bill Clinton, and Senate Budget Committee Chairman Kent Conrad (D‑ND) has also backed the bipartisan plan to extend all of the current tax rates.  Former Senator Evan Bayh, and New York Mayor Michael Bloomberg also agree and (until last week) the judgment of many other leading democrats. Fed Chair Ben Bernanke even repeated his familiar caution in testimony earlier this year, that Congress should not cut spending or raise taxes too quickly, because doing so could undermine the economic recovery.  Key Democratic members of the Senate immediately began dragging their feet. While President Obama urged immediate passage of his tax plan, senate democrats refused to take up the measure last week, fearing a very swift and justifiably negative reaction from the small businesses in their districts that would be adversely affected.

It is also a phony issue. Richard Rubin, writing in Bloomberg Businessweek summed it up well:

“President Obama’s sales pitch for the so-called Buffett Rule is simple: It’s only fair that those who make more than $1 million a year should pay a higher tax rate than middle-class workers. Here’s what he tends not to mention: For the most part, they already do… Obama is making tax fairness a central campaign issue—no surprise, since it allows the president to continually remind voters that Mitt Romney, who opposes the Buffett Rule as a burden on business, is one of those rich guys who (legally) pays tax rates in the mid-teens despite making millions…Yet Romney—and Buffett, for that matter—are the exception. According to government tax data, the median effective tax rate for the middle 20 percent of U.S. taxpayers is 13.3 percent, including income, payroll, and corporate taxes. The top 1 percent of taxpayers pay a median rate of 29.6 percent, according to the 2012 Economic Report of the President (prepared by the Council of Economic Advisors). Just one-tenth of these highest-income households have tax rates of 8.7 percent or less…. Of the 217,000 households that would be affected by the (Buffett) rule, 4,000 will have incomes exceeding $1 million and tax rates below 15 percent, according to estimates for 2015 by the Tax Policy Center, a nonpartisan research group. The bottom line: Among the superrich, Romney’s and Buffett’s 13.9 percent tax bill is the exception, not the rule. The top 1 percent pay a median rate of 29.6 percent.”

We referred to Obama’s “tax the rich” campaign as a grand diversion.  So let’s focus on exactly from what the President wants to divert attention.

(1) His pledge to cut the deficit in half during his first term:

Spinmeisters from both the left and right have been spinning like whirling dervishes trying to point fingers at the other guy in the White House. We’ll resist the temptation to join that free for all and simply present (word for word) an analysis by CBS News following the release of President Obama’s latest budget (which the Democratic Senate leadership has refused to act on as they have refused to act on any budget since Obama took office).

“The National Debt has now increased more during President Obama’s three years and two months in office than it did during 8 years of the George W. Bush presidency.

The Debt rose $4.899 trillion during the two terms of the Bush presidency. It has now gone up $4.939 trillion since President Obama took office.

The latest posting from the Bureau of Public Debt at the Treasury Department shows the National Debt now stands at $15.566 trillion. It was $10.626 trillion on President Bush’s last day in office, which coincided with President Obama’s first day.

The National Debt also now exceeds 100% of the nation’s Gross Domestic Product, the total value of goods and services.

Mr. Obama has been quick to blame his predecessor for the soaring Debt, saying Mr. Bush paid for two wars and a Medicare prescription drug program with borrowed funds.

The federal budget sent to Congress last month by Mr. Obama, projects the National Debt would continue to rise as far as the eye can see. The budget shows the Debt hitting $16.3 trillion in 2012, $17.5 trillion in 2013 and $25.9 trillion in 2022.”

2) His pledge to not raise taxes on the middle class:

The President, of course, knew that his healthcare mandate was a massive tax increase on the middle class so in the best traditions of Orwellian Newspeak he simply called it a penalty (primarily on the middle and lower middle class).  Chief Justice Roberts gave the President the constitutional cover he needed, but he did so by identifying the heart of Obamacare for what it is – A Tax!

So just who will pay these taxes? The non-partisan Congressional Budget Office estimates that most of those who will be paying these taxes are middle-class individuals and families: $59,000 for an individual and $120,000 for a family of four. Three million lower-income and middle-class Americans will pay an estimated $2 billion in these “mandate taxes.

(3) His pledge to reduce (wasteful) government spending:

Frankly, it’s hard to know where to begin.  First, we don’t reduce spending in Washington.  We merely reduce the rate at which we increase spending each year and call that reduced spending and hope no one notices.   In medicine there is an acronym “TMTC” which always refers to results of blood or imaging tests that reveal a huge quantity of stuff we don’t want in our blood, fluids or organs. It stands for “Too Many To Count.” We have a TMTC sort of problem when we begin listing wasteful spending in government.  This isn’t a problem Obama created. It’s just a problem about which he hasn’t done much (nor has any other president in recent memory).  The point is, our national debt is now bigger than our entire economy and these wasteful (certainly unnecessary) expenditures just go on.  We’ll just quote a few (a very few) references to what we call TMTC’s we found googling our way through the federal budget:

The Department of Defense spent $207 million on a duplicative second engine design for the F‑35 fighter.

HUD gave $168 million to the federally chartered Neighborhood Reinvestment Corporation, deemed unnecessary and duplicative by the Congressional Budget Office.

A report released this week by the Social Security agency’s inspector general follows several audits that in recent years have found the government paid benefits from farm subsidies to Medicare years after the people designated to receive them died. 
The audit did not determine how many of the 1.2 million people still are collecting government benefits or subsidies.

The Office of Personnel Management sent $120 million to dead federal employees. (We’re not making this up). The Office of Personnel Management doled out over $120 million dollars in the last few years to dead federal employees. In one case a son whose father had died in 1971 collected checks for 37 years. Those checks finally stopped when the son died.

Some $50 million went for retrofitting diesel engines as part of an Environmental Protection Agency program, which the Obama Administration tried, but failed, to kill.

The U.S. Agency for International Development (U.S. AID) spent $30 million in an utterly failed effort to spur mango production and sales in Pakistan.

More than $22 million went for the Agriculture, Forestry, and Fishing Program at the CDC, which duplicated similar efforts at the Department of Agriculture.

Washington helpfully gave almost $18 million in foreign aid to China — money we essentially borrowed from China.

The Air Force spent $14 million to switch three radar stations to wind power.

The Department of Agriculture spent $12 million on a duplicative energy assistance program which both the Bush and Obama administrations proposed closing.

U.S. AID devoted $12 million to help the hapless Pakistanis use less energy.

U.S. AID gave $10 million to an arts organization in Pakistan to produce local episodes of Sesame Street.

The Department of Agriculture spent $9.49 million on a duplicative program in management of foreign forests, which even the White House wants to eliminate.

The Department of Transportation spent $8.3 million to preserve covered bridges.

The Transportation Department gave Louisiana $5.18 million to build the Steamboat Overlook Interpretive Center.

Another HUD grant, this one for $1 million, went to a foreign architectural firm to move its headquarters from Santa Monica to Los Angeles.

U.S. AID underwrote a $1.35 million “entrepreneurship initiative” in Barbados.

The Agency for Health Research and Quality spent more than $1 million to get people to visit its website.

(4) His pledge to veto the healthcare bill “if it increased the deficit by one dime.”

This pledge is almost too absurd to comment on.

A study by Charles Blahous, one of two public trustees of Medicare and Social Security, shows that Obamacare increases federal deficits and significantly worsens the nation’s fiscal outlook. According to the study’s most optimistic scenario, the health law will increase federal spending by $1.16 trillion and increase the deficit by $346 billion between 2012 and 2021. The worst-case scenario: an increase in spending of $1.24 trillion and $527 billion in new deficits.

5) Obama’s pledge that his healthcare plan would allow everyone who liked their health insurance plans to keep them.

This too is a pledge we suspect President Obama wishes he never made.  The pledge was predicated on the grandfather provisions in Obamacare, which purported to protect beneficiaries of employer-provided group plans.  The Administration now admits, “as a practical matter, a majority of group health plans will lose their grandfather status by 2013.”

The Heritage Foundation observes that “the Federal Register final rules on grandfathered plans states that the “mid-range estimate is that 66 percent of small employer plans and 45 percent of large employer plans will relinquish their grandfather status by the end of 2013.” They also include high-end estimates that 80 percent of small employer plans and 64 percent for large employer plans will lose grandfathered status.

The reason:  Obamacare puts employers with grandfathered plans in a box. If they make changes to their plans to control increasing costs, they will lose their grandfathered status. Alternatively, if they keep grandfathered status by not making changes, their plans will eventually become unaffordable, forcing them to give them up. Either way, their employees will eventually lose their current coverage.”  As this plays out, we believe it will force the nation toward a government-sponsored, single payer system, which we believe has been the strategy all along.

So, we can see why the President has embarked on his grand tax-the-rich diversion that is making many leaders in his own party cringe.  As long as President Obama can keep the nation’s voters focused on the phantom 2% who aren’t paying their fair share, perhaps they won’t look at anything else.

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2 responses to “Why The “Tax The Rich” Diversion? “It’s The Election Stupid!””

  1. mark j levick says:

    Why did Obama want to be elected President in 2008? It could not have been to fulfill his campaign promises because, as you have demonstrated, he did not fulfill any of them Why does he want to be re-elected? We know he is supportive of (a) unions, (b) government regulation of banking and securities, (c) re-distribution of wealth, (d) reduction of America’s role to one amongst many nations, (e) government run healthcare, (f) a college education for every American, (g) Gay marriage, (h) abortion on demand, (i) rights for children of illegal immigrants, (j) fundamentalist Muslim regimes that have been duly elected, (k) Israel’s return to its pre 1967 borders and (l) deficit spending for the foreseeable future. If that platform is favored by the voting public Obama will be re-elected. At least this time they will know his agenda and will not just be hoping for change.

  2. Jerry says:

    It’s also a symptom of what both parties seem to believe – that we all have too much freedom for our own good. In this case, too much freedom to spend our own earnings as we wish. (I believe that Michelle Bachmann proposed that all should pay income taxes, even it they have no income). In other cases, too much freedom to eat what we want, drink what we want, marry who we want, vote or not vote, buy or not buy health insurance, drive what we want, etc.
    But, as you say so well, most of all, it’s just a diversion.

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