‘Middle-class families shouldn’t pay higher taxes than millionaires and billionaires. That’s pretty straightforward.”
That’s what President Barack Obama said in his White House speech Monday on deficit reduction. It was even more straightforward than he seemed to think. Not only should middle-class families pay less than millionaires and billionaires, but in fact they already do pay less than millionaires and billionaires. Much less.
Obama tried to blunt anticipated criticism of his remarks with a parenthetical: “This is not class warfare. It’s math.” But the actual math tells a very different story.
In 2009, about 237,000 individual income tax filers reported adjusted gross income of $1 million or more. Taken together, these filers — families and small businesses — made a grand total of $722 billion, and paid $178 billion of that in income taxes.
Their effective federal income tax rate was 24.6 percent, between three and four times the effective rate on middle-income families that pull in $50,000 to $75,000 per year.
This million-plus crowd — which makes up less than 0.2 percent of all taxpayers — made 10.6 percent of all income in 2009 and paid 20.5 percent of all individual income taxes.
To be sure, the wealthy can and should pay more in taxes than the poor. The point here is that they already do pay more — a lot more. So when we discuss tax increases on the wealthy, we aren’t really talking about whether we should be letting “millionaires and billionaires” slide on their obligations to society.
We are really talking about how large their share of the tax burden has to become before liberals finally decide it’s “fair.”
For politicians, the answer to that question is based on what they decide to spend. “The rich” — and that means everyone making over $200,000 per year — will always be failing to pull their weight until they are covering the spread between what government takes in and what politicians dish out.
Unfortunately, America’s top earners can never hope to keep up with politicians like Obama, who has just proposed an additional $447 billion in deficit spending.
In 2009, the earners Obama is targeting had $1.5 trillion in income after paying their federal income taxes and before paying taxes to states and municipalities.
Were Obama to seize every dime of that money, it would just barely cover the $1.3 trillion deficit he just ran in the fiscal year that ends next week. And of course, even a smaller seizure would have a crushing effect on the jobs that these earners create through directly through their small businesses or indirectly through their investments.
In order to make the tax hike more palatable, Obama referred to it as “tax reform.” But the term “tax reform” was never meant as a euphemism for tax increases.
Tax reform is needed because lobbyists have successfully inserted hundreds of incentives into the tax code that lead individuals and corporations to engage in economy-stunting and otherwise irrational behavior.
Tax reform is needed because 58 percent of American tax filers (81 million) had to use paid preparers to do their individual income taxes in 2008, and 75 million had to consult the IRS itself.
If Obama was serious about tax reform, he would present a reform plan that isn’t just a tax hike in disguise. And if he was serious about reducing the deficit, he would at least avoid presenting his tax hikes alongside massive new deficit spending proposals.
Columnist David Freddoso is The Washington Examiner online opinion editor.