Obama’s Class Envy VS Economic Reality (3)

One of the Progressive Movement’s core doctrines, adapted by President Obama as a reelection campaign theme is that the economy is a zero sum battle ground where the rich face off against middle class workers with one side enjoying greater prosperity only at the expense of the other.  But in reality the interests of the rich and the middle class are in harmony and their fortunes rise and fall together.  Punitive taxes and other policies designed to diminish after tax incomes may attract votes for politicians who exploit the emotions of envy and resentment but they end up hurting everyone, not just the targeted wealthy.

In several campaign speeches President Obama has asserted that voters face a choice between maintaining the current tax rates for high income Americans, most of whom are small business employers, or raising those tax rates in order to continue providing governmental benefits and services. 

The choice is false because as we showed here the current tax rates generated more, not less revenue than previous, higher rates.  And, as we showed here income tax revenue from millionaires nearly tripled within 5 years after the current (Bush) tax rates were enacted.

What about the relationship between middle class jobs and million dollar incomes?  Is the middle class deprived of jobs and prosperity when there are more rich people and their incomes are higher?

Any improvement in the human condition requires two economic inputs: human resources (given the old fashioned label “labor” in economics textbooks) and capital resources, including land, buildings, machinery, vehicles, computers, software, and cash.  Production, economic growth and job creation are not possible without capital resources.  Reinvestment of after tax profits has always the biggest source of capital resources for small businesses.  This source is even more important since new banking regulations have restricted bank lending to small businesses.

The business income of small business Partnerships, LLCs and Sub-Chapter S corporations are reported on the owners personal tax returns, and IRS data show that three quarters of taxpayers who report over $1 million are small business owners.  (The most recent IRS data is for tax year 2009, reported on tax returns filed in 2010.)

As the chart below shows, over the last decade there was consistent correlation between the number of jobs and the number of Americans with million dollar incomes.  [continued below the chart]

The number of millionaires grew rapidly after enactment of the current (Bush) tax rates in 2003, reaching a peak in 2007.  As the chart shows, the number of jobs grew with them.  However, the recession was particularly harsh on millionaires.

• In 2007  approximately 3 of every 1,000 taxpayers earned more than $1 million.
• By 2009 the number had fallen by 40% to fewer than 2 of every 1,000 taxpayers earning over $1 million.

The decline in business owners and investors with million dollar incomes to reinvest is not the only reason for the decline in jobs.  but obviously, with fewer millionaires, total capital resources to invest in small businesses, where most American jobs are created, declined as well.

Without ever explaining how, Obama seeks to promote the impression that the middle class would be better off if there were fewer Americans with million dollar incomes.  Given the data in the chart above he should be held accountable for an explanation.