According to a Reuters article, Obama is trying to put tax at the center of the campaign fight for this year—i.e. he is starting class warfare trying to pitch the lower income people against the rich people, aiming at one rich person aka Mitt Romney.
At the center of the talks will be the “Buffett Rule”—to insure a 30 percent tax on income over $1 million earned by wealthy Americans. This tax law, if passed, will be able to raise an additional 47 billion over the next 10 years—a drop in the deficit bucket of average 1 trillion of deficit a year during his administration from 2010-2013 budget years.
Obama and Democrats in Congress are trying to call people’s attentions to the low tax rates paid by wealthy Americans.
Are they right?
1) Buffett’s effective tax rate was 17.4% in 2010. This was due to the possibility that most of his income came from dividends—on which he paid an individual tax rate of 15%. Dividends are taxed twice—once at the corporate level and once at the individual level—and its real rate is over 30%. The claim that billionaire Warren Buffett paid lower tax rates than his secretary has came up before. In 2007, Buffett made the claim that his 60000-a-year secretary paid 30% while he paid 17.7%. On Dec 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 to extend the rate of 15% on dividends for two additional years. At the time, he still had control of both the Senate and the House of Representatives, so he could raise the rate if he chose to. One must ask why he chose to bring up the “Buffett Rule” now? The aim of course is to divide the 1% and the 99%.
2) Are the rich paying low tax rates? Based on 2009 tax year information from IRS, the top 1% group paid an average rate of 24% and contributed about 36.7% of the total income taxes. And the bottom 50% group paid an average rate of 1.85%, and contributed about 2.3% of the total income taxes (click here for details).
Obama and the Democrats know very well that they don’t have the votes to pass the “Buffett Rule” tax change—as the Republicans would not pass laws to raise taxes on any groups of people, especially during economic hard time.
In fact, Mitt Romney has called for a 20% tax cuts across all income levels for individuals and a lower corporate tax rate of 25% to spur growths and job creations.
If President is serious to make any tax changes, he should let his own 2% social security tax cut expire this year, implement individual ordinary tax cut instead, and stop robbing Social Security Tax trust fund over 100 billion a year.
The same article by Reuters mentioned that in 12 battleground states, 80 percent of independent voters lacking strong views on either Obama or Romney said they prefer a candidate who focuses on creating economic opportunity rather than reducing income inequality, according to a poll by the moderate Democratic group Third Way released on Monday.
Obama and Democrats once again are trying to steer people’s attention away from last Friday’s weak employment report.
As you are making decision for this fall election, don’t fall for this distraction.