In the News

Obama's tax piracy policy prevents honest debate on who pays how much

May 15, 2011 — The Washington Examiner — By Peter Ferrara   Bookmark and Share

Sen. Bernie Sanders, the avowed socialist from Vermont who filibustered extending the Bush tax cuts, doesn't understand that before President Obama was even elected, the top 1 percent of income earners already paid more in federal income taxes than the bottom 95 percent combined.

Internal Revenue Service data for 2007 showed that the top 1 percent of earners paid 40.4 percent of all federal income taxes, almost twice their share of total income. Meanwhile, the bottom 95 percent of income earners paid 39.4 percent of taxes.

Those on whom Obama wants to increase taxes, earning more than $200,000 a year, constitute just 3 percent of taxpayers. Yet that 3 percent pays more in federal income taxes than the bottom 97 percent combined.

If taxes need to be raised so that the rich pay their fair share, what the heck is their fair share?

This is why I call Obama's tax policy "tax piracy," a policy worthy of offshore Somali misanthropes. He has merely delayed his across-the-board increases for every major federal tax on employers and investors. He has vowed he'll get them in 2013.

Obama and his openly socialist Democrats only agreed to delay their tax piracy policy because even Larry Summers, Obama's former senior economics adviser, agreed with Art Laffer that delay was necessary to avoid double-dip recession, triggering America's bankruptcy. Note that such a recession would have resulted in less federal tax revenue, not more.

Note also that recent congressional action did not cut anyone's taxes (except for the temporary, one-year cut in employee payroll taxes). It only continued some current tax rates, delaying scheduled increases.

Under current law, besides the death tax going up, rates are still scheduled to rise on capital gains, dividends and payroll taxes on higher income earners because of Obamacare.

The current disproportionate burden on the rich is the result of Republican tax policy over the past 30 years. From President Reagan to House Speaker Newt Gingrich to President George W. Bush, Republicans abolished income taxes on the working poor, what liberals call the "working class," and almost abolished them on the middle class, defined as the middle 20 percent of income earners.

When Reagan brought supply-side economics to Washington, the top 1 percent of earners paid 17.6 percent of all federal income taxes.

The Republicans were holding middle-class tax cuts hostage? It was George Bush and the Republicans who enacted middle-class cuts 10 years ago. That represents $3 trillion in middle-class tax cuts over the following 10 years.

The Democrats in full control of Congress until 2011 couldn't even get around to extending those cuts, until just before taking the boot out of town the voters delivered them in November.

The other feature of our tax-piracy tax code Democrats don't understand is multiple taxation of capital. Capital income is not taxed once, but four times, by individual income tax, corporate income tax, capital gains tax and the death tax, which Democrats insisted on raising from zero percent to 35 percent.

The lower capital gains tax rate is not an unfair loophole as compared with the higher income tax rates paid by middle-class earners. Capital gains tax is paid on top of the income tax, just at the front end in addition to the income tax that will paid when the income to the capital asset is earned in the future.

This is why liberal Democrats cannot even discuss tax policy intelligently these days.

Peter Ferrara is a senior fellow at the Heartland Institute, general counsel for the American Civil Rights Union, and director of entitlement and budget policy for the Institute for Policy Innovation. This is adapted from the Encounter Books Broadsides Series.