It seems were going to be whacked with a staggering $3.8 trillion tax
hike. At least thats what the leaders of the Republican party keep
telling us. And what possible reason could they have for wanting to
deceive us less than seven weeks before the national mid-term
While the accusation makes for excellent headlines and campaign
fodder, it is provably untrue.
This all started back during the Bush Administration when a series of
income tax cuts were passed into law. They were not permanent cuts,
just temporary attempts at some stimulus for a moribund economy. They
expire in December.
The idea was the extra money in the pockets of Americans would
increase spending and investing, giving the economy a nice kick in the
pants. The very rich were expected to buy big-ticket items like new
homes, cars and, one supposes, yachts and planes. Thats why rich
folks received the biggest tax breaks. The consumer economy would
start humming right along and all would be right with the world.
At least this is the way supply side economics is supposed to work
rich folks spend and the benefits of that spending trickle down on us
little people. The same impact is supposed to result from tax cuts
and tax breaks for large corporations; they will use the new money to
invest in new enterprises, expand their current operations, purchase
new equipment and hire new employees or, at the very least, re-hire
those who have been laid off.
Unfortunately, theres never been anything that proved supply side
economics to be much more than the cocktail napkin fantasy of creator
Arthur Laffer and his acolytes in the Reagan and Bush administrations.
What actually happened after the Bush tax cuts was almost nothing; an
orgy of non-spending by everyone, including wealthy individuals and
big corporations. People of all income levels pulled spending back by
necessity and choice.
Its regrettable the very wealthy did not go on spending sprees
because they were certainly capable of doing so. The top 1% the
financial elite saw their incomes increase a whopping 150% during
this recession and they now control a staggering 23% of the countrys
wealth. They got richer but did not spend a lot more.
(Its no different at the corporate level where corporate income tax
cuts produced none of the anticipated benefits. Most companies have
not expanded or made new capital investments or hired much of anyone.
In fact, Americas biggest corporations are now awash in cash, as much
as $2 trillion in cash reserves according to some experts. They are
awaiting the right moment to invest, expand and hire. At least thats
what were told.)
Which brings us to the Obama non-tax-hike. Having already reduced
federal income taxes for most of us, Obama wants to maintain the Bush
tax cuts for everyone but those near or at the top of the economic
food chain. So, if your income is less than $200,000 a year ($250,000
per household), your taxes will stay the same. For those top income
earners, the Bush tax cut will be allowed to expire, as it was
intended to do in the first place.
Our friends in the GOP have decided to tell us the tax cuts for all
income levels will be allowed to expire. Thats where they come up
with the $3.8 trillion. The problem is no one not President Obama,
not the Democrat leadership, not anyone in the Obama Administration,
no one has ever suggested eliminating the tax breaks for middle and
low income earners.
Taxing the super-rich, most of whom will find a way around the
increases, is a favorite campaign strategy of Democrats because it
doesnt impact the overwhelming majority of us. Making the claim
were all going to be taxed is a favorite campaign strategy of the
Republicans because it makes voters angry. The hyperbolic nonsense on
both sides has added nothing but confusion to the debate.
You can argue, as many are, that allowing any of these tax cuts for
any level of income to expire is a mistake that will further slow
economic recovery. Others claim the increase in tax revenues would
help reduce the ridiculous annual deficits and that would help the
economy. Both arguments come with the requisite number of competing
experts. So far, there is little evidence the tax cuts did much to
stimulate the economy and ample evidence they added to the deficits.
If a different approach would have worked better is a legitimate and
What cannot legitimately be debated is that Obama or the Democrats
have suggested the Bush tax cuts should be allowed to expire on any
household making less than $250,000 a year. It simply isnt true.
For about 95% of us there will be no change at all under the Obama
proposal. (If youre a small business owner, additional tax breaks
are headed your way under another Obama proposal he borrowed from
We all expect exaggeration and some foolishness during the election
season. Who among us doesnt enjoy those delightful campaign
commercials? However, the accusation that President Obama wants to
raise everybodys taxes is a canard that fouls the legitimate debate
on taxes and confirms the cynicism too many voters already have about
politics and politicians.