Democrats Pave the Way for Middle Class Tax Increases

April 21, 2011

Obama’s Latest Deficit Plan Points Toward Middle Class Tax Hikes as Evidence Mounts that His Current Tax Hike Plan Can’t Cover His Tab for Spending

Of all of the exaggerated and inaccurate claims in President Obama’s deficit reduction speech last week, perhaps the most striking was that his tax hike plan could cover the tab without addressing government spending in a serious way:


REUTERS: OBAMA SPEECH CALLS FOR $2 TRILLION IN TAX INCREASES, DOUBLE WHAT OBAMA ADVERTISED. “If you’re keeping score, what Obama is actually proposing is $1 trillion in new taxes on wealthier Americans (and small businesses) and $1 trillion in higher tax revenues by reducing tax breaks and subsidies for a total of $2 trillion in new taxes over 12 years. That means total debt reduction, not counting interest, would be $4 trillion, 50 percent of which would come from higher taxes. The econ team at Goldman Sachs ran a similar analysis and found that 56 percent of Obama savings over ten years could come from higher tax revenue.” (James Pethokoukis, “Obama’s $2 Trillion Stealth Tax Hike,” Reuters, 4/17/2011)


ALLOWING CURRENT TAX RATES TO EXPIRE “WILL ONLY PUT A SMALL DENT IN THE PROJECTED DEFICIT”: Eliminating the Bush tax cuts for the highest earners, however, will only put a small dent in the projected deficit.” (Carol Lee and Damian Paletta, “Obama Puts Taxes on Table,” The Wall Street Journal, 4/11/2011)


THE WALL STREET JOURNAL: UNDER CURRENT OBAMA TAX FRAMEWORK, DEFICIT REDUCTION IS MATHEMATICALLY IMPOSSIBLE. “A dominant theme of President Obama’s budget speech last Wednesday was that our fiscal problems would vanish if only the wealthiest Americans were asked ‘to pay a little more.’ Since he’s asking, imagine that instead of proposing to raise the top income tax rate well north of 40%, the President decided to go all the way to 100%.


“Let’s stipulate that this is a thought experiment, because Democrats don’t need any more ideas. But it’s still a useful experiment because it exposes the fiscal futility of raising rates on the top 2%, or even the top 5% or 10%, of taxpayers to close the deficit. The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle class—because that’s where the big money is. …


“In 2005 the top 5% earned over $145,000. If you took all the income of people over $200,000, it would yield about $1.89 trillion, enough revenue to cover the 2012 bill for Medicare, Medicaid and Social Security—but not the same bill in 2016, as the costs of those entitlements are expected to grow rapidly. The rich, in short, aren’t nearly rich enough to finance Mr. Obama’s entitlement state ambitions—even before his health-care plan kicks in.(Editorial, “Where The Tax Money Is,” The Wall Street Journal, 4/18/2011)


Obama only offered vague outlines rather than serious solutions to control federal spending. Budget experts say that his plan “falls short”:


COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET: “THE PRESIDENT’S FRAMEWORK FALLS SHORT”: “The draft analysis by the Committee for a Responsible Federal Budget says that ‘the President’s framework falls short’ in deficit reduction, particularly when compared to plans put out by House Republicans and by Mr. Obama’s blue-ribbon fiscal commission panel.


“Those other plans deliver about $4 trillion in deficit reduction over the next 10 years, according to the analysis. Mr. Obama’s plan… delivers only about $2.5 trillion over 10 years (the standard budget measure), according to the analysis.


“One problem is that much of the Obama framework’s savings is packed into the last two years of his 12-year budget window. In its analysis, CRFB also uses economic and other assumptions from the Congressional Budget Office, rather than the more optimistic numbers of the White House budget office.”(John D. McKinnon, “Budget Watchdog: Obama Deficit Plan ‘Falls Short’,” The Wall Street Journal, 4/20/2011)


These inconvenient truths present a similarly inconvenient reality: either Obama has chosen to not be serious about deficit reduction, or he will have to go beyond his already proposed $2 trillion tax hike and increase taxes further on the middle class. Fresh off Standard & Poor’s outlook downgrade on U.S. government debt, will Obama continue touting a plan that “falls short” on his nationwide town hall tour or will he finally join Republicans to offer serious solutions to address America’s debt crisis?:


THE WALL STREET JOURNAL: OBAMA “PRETEND[S] NOT TO INCREASE TAXES FOR MIDDLE CLASS VOTERS WHILE LOOKING FOR SNEAKY WAYS TO DO IT”:“So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. …


“This is politically risky, however, so Mr. Obama’s game has always been to pretend not to increase taxes for middle class voters while looking for sneaky ways to do it.” (Editorial, “Where The Tax Money Is,” The Wall Street Journal, 4/18/2011)

(Jonathan Karl, “Fact Checking the Tax-Cut Debate,” ABC News, 9/8/2010)