Politics

Obamaism: The Even Distribution of Misery

| by William O Keefe

Bad-mouthing the rich and often vilified industries is a tactic made famous by Chicago activist, Saul Alinsky, who counseled “pick a target, freeze it, personalize it, and polarize it” back in the ‘70s.

Now as President Obama and Democrat leadership on Capitol Hill hustle to convince the public that raising taxes on any individual who earns over $250,000 annually and increasing the tax burden on our domestic oil companies would help the government reduce its deficit, it seem as if they’ve taken a page from Alinsky’s Rules for Radicals.

They’ve cunningly framed the issue as a caricature of wealthy elite and fat cat CEOs benefiting at the expense of the rest of the country from these existing tax cuts and alleged ‘loopholes.’

This spurious soundbyte may be politically savvy; but from an economic standpoint, it’s bunk. Such onerous tax proposals have the appearance of being part of an agenda to remake the U.S. economy, penalize success, and increase our dependency on the federal government.

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Despite claims by the administration and other Democrats that raising the individual tax rate from 35% to 39% only targets the rich and wouldn’t hurt small businesses or middle class households, the facts show this move would be economically damaging at a time when our economy is struggling to recover. If there ever was a moment when a case could be made for higher taxes (and it can’t), it certainly is not now.

Tax revenue in 2008, in spite of the recession, was 2 1/2 times larger than it was in 1990. During the Bush years it grew by about 25%. Yet, unbridled spending by both parties squandered revenue and created a fiscal problem that will take decades to resolve.

In 2008, about 142 million individuals filed tax returns. Of these, 4.4 million came from taxpayers earning over $200,000 but only 320,000 were from those with incomes of $1 million or more. About 80% fell in the $200,000 to $500,000 range. Consequently, Obama’s plan to raise the top tax rate would not just hit people like Michael Bloomberg and Steven Spielberg—the caviar and champagne class most often associated with the term “rich.” Instead, the majority of individuals hit by the hike would be entrepreneurs and small business owners. 

According to the Tax Foundation, over 70% of filers in the top bracket report business income, and more business income is taxed at individual than corporate rates. That could mean that upwards of 3 million taxpayers with business income would be hit with a larger tax bill starting in 2011. (Not quite the small figure Obama contends.) And since small businesses account for most of America’s job growth, higher taxes work directly against our economic recovery. Money that individuals could otherwise put toward job creation and capital investment would go to Washington.

Arguments that lawmakers want to use increased tax revenue to help “small business” establishes an arbitrary cut off of what companies fit that term and deserve tax incentives. That means politicians who support the $200,000-and-up tax hike support penalizing rather than incentivizing thousands of small American firms -- from a single-store, family-owned dry cleaners in the Midwest to a small construction outfit with half a dozen employees in the Gulf.

It looks like another case where Democrat elites believe that they are better than consumers and investors in determining what businesses should succeed. This interpretation could be dismissed as extreme if the White House and congressional Democrat leadership did not also want to penalize our oil sector for successfully providing products that U.S. consumers and our economy need.

Under current law, U.S.-based companies that earn foreign-source income and pay taxes in the countries where that income was generated can take a credit against their U.S. taxes. The Obama administration wants to eliminate this so-called ‘dual capacity’ protection credit for America’s oil sector, thus subjecting them to double taxation on some of their earnings. Once again, the White House wants to add to our tax burden to subsidize what it considers the companies of the future. Additionally, some Congressmen wants to modify a tax provision designed to encourage domestic manufacturing to exclude oil companies. Both actions would punishing our traditional energy sector for successfully providing our businesses and households abundant, affordable fuel, 24 hours a day, 365 days a year.

Other administrations and previous Congresses have attempted to have the wisdom of Washington replace the wisdom of the marketplace. Those attempts eventually failed while managing to do a great deal of damage to the economy in the process. 

History has proven that the best way to solve the unemployment problem and economic stagnation is through capital investment and private risk taking. We only have to look to Europe to see the consequences of high taxes and too much government interference in the market place--high unemployment and low economic growth. We experienced stagnation in the 1970s. We should not have to relearn the lessons of economic folly.

To paraphrase Winston Churchill, capitalism is the uneven distribution of blessings; Obamaism will be the even distribution of misery.

William O’Keefe, chief executive officer of the George C. Marshall Institute, is president of Solutions Consulting Inc.