Cynical Campaign Rhetoric Continues

The President is not yet serious about resolving the Fiscal Cliff crisis he helped create.

Due to negligence on the part of President Obama and Senate Democrats, 2011 and 2012 budget and borrowing issues were not resolved.  Instead the President actually signed into law a series of bills that add up to The Fiscal Cliff (TFC): Beginning New Years Day there will be spending cuts that mostly affect Defense and tax increases that will hit every taxpayer, at every income level.  Congress can prevent TFC only by passing new legislation before the end of December. 

Most but not all of the January 1 tax increases are listed in the table.  Here are a few more:

  • For two years the employee’s share of the Social Security Payroll tax has been temporarily reduced from 6.2% to 4.2%.  It will  go back up January 1, affecting every employee at every income level.
  • A new 3.8% ObamaCare tax will be levied on capital gains and dividends earned by high income tax payers.
  • The Alternative Minimum Tax, a way of collecting extra taxes which – like most taxes – was originally sold as a only for the rich, is scheduled to expand, punishing tens of millions more taxpayers than ever before;
  • Several special tax provisions that benefit small business will expire.

The current tax rates, (red in the table) called the Bush tax cuts or Bush tax rates have been in effect since 2003.  Democrats have tried several times to repeal some or all the Bush tax rates and reimpose the higher rates that were in effect before 2003 (blue in the table).  The most recent legislation, enacted in December 2010 raises all rates effective January 1. 

Inexplicably, Mitt Romney chose not to make this insanity a campaign issue, allowing Obama and the national media to conspire to hide it from the voters behind a smoke screen of fabricated controversies about Bain Capital, Big Bird, and contraceptives.

In answer to a question during the Vice Presidential Debate Joe Biden said Obama’s plan was:

The middle class will pay less, and people making a million dollars or more will begin to contribute slightly more.

Since the election Obama has not proposed to tax anyone less.  But he did lower the bar for a tax hike from a million dollars to $250,000.  At the press conference he answered a question by simply reciting a portion of his standard campaign speech:

When it comes to taxes, there are two pathways available.  Option one, if Congress fails to act by the end of this year, everybody’s taxes will automatically go up, including the 98 percent of Americans who make less than $250,000 a year, and the 97 percent of small businesses who earn less than $250,000 a year. That doesn’t make sense. Our economy can’t afford that right now. Certainly, no middle class family can afford that right now.

The other option is to pass a law right now that would prevent any tax hike whatsoever on the first $250,000 of everybody’s income. And by the way, that means every American, including the wealthiest Americans, get a tax cut. It means that 98 percent of all Americans and 97 percent of all small businesses won’t see their taxes go up a single dime.

Well, of course with so many different taxes and tax brackets there are a lot more than two options – there are hundreds of options.  But that aside, why did he try to assure us that 97 percent of small businesses wouldn’t suffer a tax hike?  Because he has polling data showing most of us understand that small businesses are the source of most new jobs and increasing the tax burden on those employers inevitably curtails job creation. 

But, as we have reported several times before, his 97% statistic is deeply misleading.  He generates this deceptive statistic by herding every taxpayer who reports income from a business activity into a single category he calls “small business.”

This category of taxpayer includes millions of one or two person businesses and a relative few larger businesses, such as construction, or restaurants, or software  firms, with several employees, who are in a position to grow and create more jobs by reinvesting profits.  

If 97% of all small businesses earn less than $200,000, the remaining 3% are the most important to growing the economy and creating jobs.  These are the businesses with more than $200,000 in taxable profits, who will be hit by Obama’s tax increase.  Every dollar of increased taxation, is one less dollar available to reinvest in the expansion that is necessary for jobs to be created.

Here are some data – some hard facts – from the IRS Statistics of Income Division for 2009, the latest available:

  • 65% of taxpayers reporting more than $200,000 in income were small business owners.
  • 72% of of all small business income was reported by taxpayers earning more than $200,000.
  • 2.6 Million small business owners reported more than $200,000 in income.

That the President would continue to repeat this deceptive small business statistic demonstrates that he is still in campaign mode and is not yet serious about resolving critical budget issues and removing the impediments to economic growth and job creation.


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