by Dick Morris
And has property tax payments of $1,941.32
And has to pay $12,483.90 in state income tax
And gives 4% of their income to charity
Then, they will find their federal income taxes rising by 3.7%, or $661.61, under Obama’s proposals.
Option Three—Household Income $250,000
If the family makes $250,000 a year
And has a mortgage of $352,229.68
And has property tax payments of $4,099.95
And has to pay $22,483.90 in state income tax
And gives 4% of their income to charity
Then, they will find their federal income taxes rising by 15.4%, or $5,147.65, under Obama’s proposals.
Option Four—Household Income: $400,000
If the family makes $400,000 a year
And has a mortgage of $536,324.26
And has property tax payments of $6,242.81
And has to pay $37,483.90 in state income tax
And gives 4% of their income to charity
Then, they will find their federal income taxes rising by 29.9%, or $19,618.54, under Obama’s proposals.
These scenarios assume the following tax changes recommended by Obama or by his Deficit Reduction Commission:
An increase in the top rates to 39.6% and 36%
An increase in the FICA ceiling to $150,000
Replacement of the mortgage interest and charitable deductions by a 12% tax credit
Capping the state and local tax deduction at 28%
Cutting the payroll tax by 2% as adopted as part of the deal extending the Bush tax cuts
Eliminating the Child Tax Credit
And there’s more: Obama’s Commission also recommended eliminating or curtailing the Child Tax Credit, which gives low-and moderate-income parents a $1,000 credit on their income taxes for each child.76 A “refundable” credit, it really amounts to a welfare payment for those who either pay no taxes or pay less in taxes than the credit allows.
It also called for reduction or elimination of the Earned Income Tax Credit (EITC), a program that assures that anyone who goes to work, full-time, and finds that their paycheck does not lift their family out of poverty, will get the difference as a refundable tax credit. Alone among the social welfare programs, this one makes great sense. It guarantees that work pays, and it is key in the success welfare reform has had in cutting poverty even as it slices the welfare rolls.
But Obama is not stopping there. While he promised during the campaign that he would not raise taxes on the middle class, his Deficit Reduction Commission has recommended a steep hike in Social Security taxes for families making more than $106,800, but less than $150,000 per year—middle class by anybody’s definition.
Right now, employers, employees, and the self-employed only pay FICA taxes on the first $106,80077 of income (a sum indexed to inflation). Now, Obama’s Deficit Reduction Commission has proposed raising the ceiling to $150,000 per year. That means that any family whose joint income exceeds $106,800 will now have to pay Social Security taxes on their entire income up to $150,000. Eighteen million American households will see their taxes rise.78 Now Obama is defining the “middle class” as having incomes below $100,000 per household!
That blessed day—usually in the fall—when our paychecks go up because they are no longer taking out Social Security taxes will not happen for most Americans.
For families making $150,000, this amounts to an almost 50% increase in their Social Security taxes. And Obama will have a hard time describing families whose joint income is between $106,800 and $150,000 as wealthy.
All these tax increases are on the table and very possible in an Obama-dominated world.
The recommendations of the Obama commission on the deficit were endorsed by most of the Democrats on the body. That’s no surprise. What is shocking is that Republican senators Mike Crapo (ID), Tom Coburn (OK), and retiring senator Judd Gregg of New Hampshire all voted to back the tax increases recommended by the Commission. There must be something in the water supply in Washington that turns good men like these into taxers and spenders. Hopefully, the conservative Republicans of Idaho and Oklahoma will learn of their apostasy and will press them to recover their sense of fiscal conservatism on the Senate floor.
And there are still more tax hikes coming! The administration has floated all sorts of new ideas for torturing our taxpayers.
Copying the European socialist model, Obama’s people have trumpeted a value-added tax (VAT) as a possible solution. This tax, hidden from view, is imposed at each stage of a commercial transaction. When the raw material suppliers sell to the manufacturer, they pay a VAT. When the manufacturer sells his products to a wholesaler, he pays a VAT. And when the wholesaler sells to a retailer, he too pays a VAT. By the time the product reaches the consumer, each layer of taxation is already built into the price of the product or service. The customer has no idea how much tax he is paying, the product just seems to cost a lot.
“Fair tax” advocates like talk show host Neal Boortz have urged a VAT for America, but only as a replacement for the federal income tax. Obama doesn’t want to replace any tax. He just wants to add on. Since the Sixteenth Amendment to the Constitution isn’t likely to be repealed anytime soon, a fair tax could be dangerous. Politicians could just sneak back and keep the income tax in addition to the VAT levy.
…And Obama’s not through yet. The House passed an income tax surcharge for families with incomes of $250,000 or more in its early version of the ObamaCare legislation. Though the provision died in the Senate, it will likely be revived when the time comes to pass around the hat to pay off the deficit.
…No, not finished yet! Obama also wants to cut “spending” on what budget types call “tax expenditures” (i.e., deductions or tax credits). He wants to sweep through the tax code and slash or eliminate tax breaks that businesses and individuals get.
The Obama liberals flagged their intentions when President Clinton’s former chief of staff, John Podesta, proposed cutting tax deductions and credits in a memo from his think tank, Center for American Progress. (Progress toward bankruptcy!)
Podesta’s group proposed:
Ending deductions for business meals and entertainment. Currently we can deduct half the cost of the meal. No more.
Taxing life insurance benefits for the dead. Right now, the earnings your life insurance premiums gather are not taxable. Obama would tax them at the time of your death. This is in addition to reimposing the inheritance tax. Don’t die under Obama!
Eliminating tax breaks for farmers.
Increasing taxes on credit unions.
Increasing taxes on Blue Cross and Blue Shield. At the same time health insurance premiums are soaring due to ObamaCare!
Taxing timber companies more heavily.
Raising taxes for nonprofit life insurance companies.
Eliminating the real estate investment tax shelter. This will cripple efforts to provide good housing in the inner city.
Taxing the interest on state and local bonds for privately owned infrastructure projects. At the same time he is spending like mad on infrastructure, he would cripple states and cities trying to build sewage treatment plants, hospitals, airports, energy plants, etc.
Eliminating all tax deductions for state and local bonds and replacing them with a flat subsidy. With the municipal bond market on the verge of collapse because of concerns over the solvency of many states, this proposal will just make things a lot worse.
Ending tax breaks for businesses that locate in inner-city areas. Great for a president pledged to help our cities!
These “tax expenditures” will be billed as closing loopholes or ending “welfare for the rich,” but they will be tax increases just the same, each draining money from our economy—dragging it down—and transferring wealth to the government.
To stop these tax increases, Republicans will have to hold the line against any increase in levies and propose deep spending cuts to reduce the federal budget d
eficit.
TAX HIKES WON’T CUT THE DEFICIT
Obama’s tax proposals will not cut the deficit, but will lead to an ever steeper downward spiral in the economy that will swell the deficit by adding to entitlement payments and will necessitate greater and greater tax increases.
The increases in taxation will dampen economic growth. Each new tax increase will generate less and less of the expected new revenue as it soaks up money that should have fueled consumer demand and business expansion. With each new rung up the tax ladder, economic activity will decline and revenue growth will fall shorter and shorter of anticipated levels.
And, as the economy staggers under the impact of higher taxes, entitlement spending will rise. More people will need welfare, food stamps, unemployment compensation, and Medicaid. While Obama may initially propose higher taxes as part of a combination of spending cuts and tax increases, the inability of the tax hikes to generate enough revenue and the growth of entitlement spending will ensure his failure to close the deficit. That will trigger a pattern of higher and higher taxes and less and less economic growth.
That was exactly what happened in 1982, when President Ronald Reagan agreed with the Democratic Congress to go along with higher taxes. The deal was that for each dollar in tax hikes, they would cut $3 in government spending. Sounded like a good deal. But although the taxes went up, the spending never came down. In fact, it rose. From 1983 to 1988, federal outlays increased from $808 billion to $1.1 trillion79
And, when Bush 41 caved in to Congressional Democrats in 1990 and broke his “read my lips” pledge of “no new taxes,” he agreed to a 2:1 ratio of spending cuts to tax hikes. Once again, taxes rose on schedule, but the spending cuts did not materialize. In fact, spending rose from $1.25 trillion in 1990 to $1.53 trillion in 1995.80
If Obama has his way and gets a mix of spending cuts and tax increases, we will wind up with the same result we had after Reagan and Bush 41 made similar concessions—higher taxes and higher spending.
On the other hand, tax cuts can balance the budget because they stimulate the economy, which grows tax revenues and decreases entitlement spending.
Again the historical record makes the case clear:
When President Ronald Reagan cut the capital gains tax rate from 39% to 28%, the economy grew by 4.4%—about 1.3% higher than the historic average.81
And when Reagan cut the top rate of the income tax from 70% to 50% and cut the capital gains rate form 28% to 20%, economic growth averaged 5.3% over the ensuing three years—2.3% above historic norms.82
And when Clinton cut the capital gains rate from 28% to 20% (it had risen back in 1986), growth averaged 4.6% over the next three years—1.6% higher.83
The history of tax cuts stimulating the economy is clear.
The Americans for Tax Reform note that the Congressional Budget Office “projects that every tenth of one percent increase in economic growth over the next decade will increase federal tax revenues by $247 billion.” If we can adopt policies that grow the economy 1% faster (including strategic tax cuts), we can trigger $2.5 trillion of new revenues over the next ten years without higher taxes.84
In 1995, President Clinton suggested that the Federal Reserve Board was being unduly conservative in its growth policies. He noted that draconian budget cuts and tax hikes could be avoided by a policy that allowed the economy to grow its way out of the deficit. The president wanted to deliver a speech to underscore this point, but he was hooted down by his economic advisors who were wary of offending the Fed. Apparently, Clinton and then Fed chairman Alan Greenspan had reached a nonaggression pact in which each agreed to refrain from criticizing the other. But Clinton’s point was absolutely right, and the performance of the economy after he cut the capital gains tax proves it. We had growth with no inflation.
The fact remains that the only tax that stimulates the economy is a tax cut! And the record proves it over and over again.
PART THREE
HOW THE REPUBLICAN HOUSE CAN UNDO THE DAMAGE OBAMA HAS DONE
In one of the greatest electoral upheavals in American history, the Republican Party regained control of the House of Representatives in the midterm elections of 2010 and cut the Democratic margin in the Senate to a narrow 53–47. There are now fewer Democrats in the House of Representatives than at any time since 1938! The tremors of the massive Republican earthquake have toppled Democratic dynasties in many of the fifty states.
Having abused the American people by using their mandate for “change” to socialize health care, grow government to monumental proportions, and take over broad swaths of America’s private sector, Obama’s Democrats were repudiated—soundly—by outraged American voters.
But this massive victory simply begs the question: what should the GOP do with its newfound political power? How can it turn America around, reinvigorate the economy, and at the same time expose the Obama presidency and economic program for the fraud that it is?
The Republican Party has the power to save our nation and end our drift into a decade-long depression. But how should it proceed?
Some have wondered if a Democratic Senate can make a Republican House impotent. Hardly. If the issues that faced us were primarily those of policy, the breach between the two Houses might indeed sap Republican momentum. But they’re not. The issues we face are largely financial: how do we lower the budget deficit by slashing federal government spending and returning it to pre-Obama levels?
Even when issues of policy are involved, as with Republican efforts to roll back Obama’s changes in health care law, they become fiscal very quickly. While Republicans cannot repeal ObamaCare—they lack the votes to override a presidential veto of such a bill—they can focus on defunding it. So even health care becomes a financial issue, not just a policy question.
On financial issues, a majority in the House of Representatives goes a long, long way.
First, of course, the federal Constitution requires that money bills originate in the House. So it is there that the nitty-gritty of structuring the federal budget begins.
Moreover, it takes two houses of Congress and a presidential signature to pass a budget, raise the debt limit, or to OK appropriations bills. If the House of Representatives says no, the spending doesn’t happen.
Alex Castellanos, a Republican political consultant, said it best on election night of 2010 on CNN. “America decided to put a brake pedal on Barack Obama’s car tonight, stop spending, stop the health care, the expansion of government, but you only need one brake pedal.”1 You don’t need two.
With Republican control of the House, a huge confrontation with the president over cuts in spending versus increases in taxes is sure to dominate the landscape of the coming political cycle.
And the Democratic control of the Senate might prove more apparent than real, as was their control of the House in the wake of the Reagan victory of 1980. In that Republican landslide, the GOP only captured the Senate, but left the House in the skilled hands of Democratic Speaker Tip O’Neill (the exact reverse of the 2010 outcome). Many worried that the Reagan revolution would die in the House committees and on the floor. But it didn’t.
O’Neill and the Democrats were so intimidated by the Reagan sweep of 1980, and so determined to avoid a fate similar to their defeated Democratic Senate colleagues, that they passed the Reagan agenda with few demurrals.
We saw an early indication of the weakness of the Democratic Senate majority during the lame duck session in December 2010 after the Republican victory. Even though the Democrats still had their old 2009–10 majority meeting for one last time, they couldn’t roll back the Bush tax cuts on the wealthy. Indeed, four moderate Democrats—Senators Jim Webb (D-VA), Joe Manchin (D-WV), Ben Nelson (D-NE), and Joe Lieberman (I-CT)—voted with the Republicans. All but Lieberman are up for reelection in 2012. They read the handwriting on the wall and voted with the Republicans to support the tax cuts.
The Democratic majority cannot afford to lose four votes in the future becaus
e it holds the Senate by the tenuous margin of 53–47. With other endangered Democratic senators up for reelection in 2012, more defectors might join the four in abandoning Obama’s program. They are likely to ask themselves, Why should I stick my neck out and vote with Obama and incur the wrath of my home state voters, when, even if I vote the way the Republicans want, Obama will veto the bill and it cannot be overridden?
So the House is likely just to push the Senate aside, taking advantage of its cowardly Democratic moderates (call them opportunists), and face the president one-on-one.
Will President Obama move to the center?
He can’t. Obama has dragged our politics so far to the left that what he might now call the center is what used to be the left. When Obama took office, the federal, state, and local governments ate up 35% of our nation’s economy (GDP). Now they consume 44%. We need to roll it all back to 35% so that our private sector can have room to breathe and grow.
On this fundamental question, there is no middle ground. If Obama moves to what he might define as the center and proposes to cut spending back to, say, 40%, it would be unacceptable. It would freeze in place and make permanent a massive expansion of government.
In the New York Times of December 1, 2010, Matt Bai’s article “Debt-Busting Issue May Force Obama Off Fence” illustrates how the liberals will try to portray what used to be the left as the new center. How they will try to pretend Obama is moving toward compromise, when all he is really doing is protecting far-left positions and huge spending increases.2
Bai writes that “Mr. Obama has almost invariably sought to position himself halfway between traditionalism and reform.” He goes on to “take the example of Mr. Obama’s first initiative, the roughly $800 billion stimulus, which independent and conservative voters revile as a huge government handout, while liberals deride it as too small and too timid.” For a second example, Bai cites “the health care law, which struck independents as liberal overreach and yet bitterly disappointed the left because it didn’t include a government-run plan.”3
