Short and Sweet Blog

I define the upper middle class as those people who have high incomes but who, if they stopped work, would have to substantially reduce their lifestyles. They may have capital gains and dividend income as well, but the bulk of their income comes as a result of their own work and effort. This is the basis on which I distinguish between the upper middle class and the truly wealthy. ”] The truly wealthy, as opposed to the upper middle class, have high incomes but need not work whatsoever to earn them. Their lifestyles are simply not dependent on their own efforts. President Obama sees the distinction between the upper middle class and the truly wealthy but for some inexplicable reason singles out the upper middle class for the harshest treatment in his “austerity budget” priorities. The new Obama plan gores the devil out of the upper middle class while doing little to affect the lifestyles of the truly wealthy. Both the Ryan and the Simpson-Bowles Deficit Commission priorities do substantially less to single out the upper middle class for special tax “punishment.”

Derek Thompson, of the Atlantic, has posted a comparison of the three deficit reduction plans on the table. Thompson compares the highlights of the taxing policies of the three plans, Congressman Ryan’s, President Obama’s and the Simpson-Bowles Deficit Reduction Commission’s. This is what Thompson says about the three:

Tax Reform

White House: Let Bush tax cuts expire for “the wealthy.” Limit itemized deductions for the wealthiest 2% of Americans to reduce the deficit by $320 billion over ten years. Convene a panel on tax reform. (Another part of the speech calls for “tax reform to cut about $1 trillion in spending from the tax code,” that is $1 trillion in tax expenditure cuts.)

Paul Ryan: Extend the Bush tax cuts and enact tax reform. Repeal $800 billion in tax increases imposed by Affordable Care Act simpler, less burdensome tax code for households and small businesses. Consolidate and lowers tax rates for individuals so that the top rate comes down from 35 to 25 percent and pay for it by sweeping out deductions and exemptions. Lower corporate tax rate from 35 percent to 25 percent and pay for it by sweeping out tax expenditures.

Deficit Commission: Enact comprehensive tax reform. Consolidate and lower individual income rates to 12%, 22%, and 28%. Eliminate most tax expenditures that don’t protect the low-income. Tax capital gains and dividends as normal income. Lower corporate income rate to 28%, eliminate most deductions, and move to a territorial tax system, which would not tax profits made by U.S. multinationals overseas.

As you can see, of the three only the Deficit Commission’s plan returns the taxes on Capital Gains to the Reagan era status of treating them like earned incomes. As such the plan proposed by the least politically potent of the three, the Deficit Commission, would actually get at the wealthy by having them pay their income taxes as if they earned those incomes by their own blood, sweat and tears instead of through dividends and capital gains. Remember what candidate Obama once said about this issue and “fairness”:

Apparently the President has changed his mind since his election as to what is fair. He chooses in his own plan to maintain the current gross tax rate advantage for the truly wealthy vis-a-vis the upper middle class. Even stranger, by both raising the tax rate on those in the upper two percent of income earners and eliminating many, if not all, of the itemized tax deductions, the President has singled out the upper middle class to pay much more in tax, not the truly wealthy like his friend Warren Buffet. This is because, other than the charitable contribution deduction, few of the truly wealthy claim the benefit of the other itemized tax deductions. The truly wealthy are likely to own their own homes outright so the deductibility of mortgage interest is of no concern. In addition to the increased tax effect, removing the mortgage interest deduction will actually cause the expensive homes of the upper middle class to lose market value since prospective buyers will be even less interested in owning them. Furthermore, in order to claim other so-called itemized deductions those expenses must exceed 7% of their Adjusted Gross Income. The truly wealthy are much less likely to meet the threshold of 7% to claim medical care deductions or other lesser known deductions subject to the 7% cap than those making at the lower ranges of the $250,000 limit.

The people getting the shaft under Obama’s priorities are the ones who go to work everyday, often at 5:00 a.m. to run their businesses, check on their hospitalized patients or otherwise work for a living. They’re the ones climbing the ladder, they are not at the top yet. They are motivated and personally involved in providing goods and services as well as jobs in the real world. Why would Obama single out those who are climbing the ladder to subject them to the heaviest burden of taxation? Is it truly just politics or is it his ideology? At the next press conference won’t somebody, like Charlie Gibson who did so at a democratic presidential debate, ask him about why this is? Ask him why he’s backed off his campaign rhetoric concerning Capital Gains tax fairness. Of course, this would only be possible if there ever is another news conference with real journalists in attendance!!!

This entry was posted on April 14, 2011 at 4:09 pm and is filed under Politics, Taxes. You can subscribe via RSS 2.0 feed to this post's comments. Both comments and pings are currently closed.