Could Obama’s Promise Of No Tax Hikes For People Under $250,000/Year Be His “Read My Lips” Moment?
Obama’s math on his promise to avoid tax increases for people making under $250,000/year doesn’t add up. I’m thinking this could be Obama’s “read my lips” moment.
Here’s Obama speaking during last night’s address:
In order to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2% of Americans. But let me perfectly clear, because I know you’ll hear the same old claims that rolling back these tax breaks means a massive tax increase on the American people: if your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime. In fact, the recovery plan provides a tax cut – that’s right, a tax cut – for 95% of working families.
Here’s David Leonhardt pointing out that even if we tax “the rich” who make over $250,000 at rates well over 50% it still won’t be enough to meet deficits:
To the extent that Mr. Obama has talked about raising taxes, he has focused on households that make at least $250,000 a year. And their taxes will certainly need to go up. In the last three decades, as the pretax income of the top 1 percent of earners has soared, their total federal tax rate has fallen to 31 percent, from 37 percent, according to the Congressional Budget Office.
But the problem can’t be solved just by taxing the rich. That top 1 percent pays only about one-quarter of federal taxes. Once the recession ends, taxes on the not-so-rich will need to rise, too.
If, by paying a 31% federal tax rate, the richest 1% of the country “only” pays about 25% of the taxes we’d have to jack up their rates to confiscatory levels, well over 50% of their income, to make ends meet.
How many people are going to sit still for that? Jacking up taxes on the rich to absurd levels would reach a point of diminishing returns, and I think we’re pretty near that rate already. The more you tax, the more incentive “the rich” have to avoid those taxes either legally by exploiting tax loopholes or moving their money/assets/income streams off shore or illegally through outright fraud. Neither is beneficial in terms of tax revenue.
And that’s not even counting the detrimental impact to the economy. The people at the top of the income brackets and a disproportionate impact on the economy. They are the investors. They are the entrepreneurs. They are the ones starting businesses, investing capital and making the purchases that make our economy crank. If you tax them out of the country, or diminish their ability to spend and invest, you hurt the economy.
I know that’s not a popular view in this age of “hate the rich” populism, but it’s true whether we want it to be true or not.