02.01.2012 0

The politics of who pays taxes

Barack Obama delivering the State of the Union

Photo Credit: White House

By Robert Romano — Why does Barack Obama play the politics of division on the income tax question? At the State of the Union Address Obama was at it again, quick to point out that “Warren Buffett pays a lower tax rate than his secretary.”

It’s not that hard to understand once one looks at the numbers.  It’s less about who pays taxes, or how much they pay, than it is about who doesn’t.  Most voting-age Americans do not pay income taxes — approximately 50.6 percent.

That includes 53.91 million Americans who pay nothing in income taxes, and 64.7 million who get refunds in excess of what was owed.  That’s 118.61 million out of 234.6 million Americans 18 years and older, based on data compiled by the Joint Committee on Taxation and the U.S. Census Bureau.

As a subset, the non-income taxpayers include 35.1 million who do pay payroll taxes but do not make enough or have enough deductions and credits that they do not have an income tax liability, based on data compiled by the Bureau of Labor Statistics showing 148.8 million Americans who have jobs full-time and part-time.

That leaves 116 million Americans who do pay income taxes, 49.4 percent of the voting-age population.

Further weighing the argument in his favor, when Obama talks about raising taxes on the upper-income brackets, he’s talking about just 3.9 million Americans who make $200,000 or more in Gross Adjusted Income according to the Internal Revenue Service.  When he invokes the Buffett Rule, proposing raising capital gains taxes for those who earn more than $1 million, he’s only talking about 450,000 Americans.

That’s less than 2 percent of the voting-age population.  And Obama’s betting that even if every single one of them voted against him, appealing to the 98 percent of voters whose tax rates would remain the same will help him get re-elected.

That is, if the tax rates of the wealthy become a front and center issue in the 2012 election.  If they do, the political advantage will shift to Obama.

To disarm the Obama class warfare strategy, Republicans in 2012 will need to focus not on fairness in the tax code or over who pays taxes — which is to fight the battle on Obama’s terms — but to shine the spotlight on Obama’s lousy economic and fiscal record.

The fact is, the Obama economy has failed to create enough jobs to even keep pace with the growth of the population.  Since Obama took office, the civilian labor force participation rate has dropped from 65.7 percent to just 64 percent, resulting in a loss of about 4 million people from being counted as unemployed even though they are of working age — because they’ve given up.

If those 4 million were included in the labor force, the effective unemployment rate would be closer to 11 percent, and the underemployed rate 17 percent, instead of 8.5 and 15.2 percent, respectively.  Overall, there’s about 27 million working age adults who cannot find full-time work but would like to.

Since the jobless fall within the 118.6 million non-income taxpayers, Republicans can eat into Obama’s advantage by speaking to their plight.  Overall, they can make a compelling argument that they are better off with real work than government benefits.

Specifically, despite record numbers of unemployment benefits and food stamps being given under the Obama Administration, those taxpayer-funded checks have not been enough to help folks make their mortgage payments, and millions of Americans are still losing their homes.

The solution is not to perpetually increase welfare for Americans — which with a debt of $15.2 trillion is not a sustainable proposition anyway — or to tax the wealthy, but to reduce the cost of doing business here, making the nation globally competitive again, and creating jobs.

That can be accomplished by cutting the highest corporate tax rate in the developed world, rolling back the harsh regulatory environment — particularly in the areas of energy, the environment, health care, and labor — lifting restrictions on creating capital, and strengthening the dollar.

In contrast, Obama’s entire agenda includes planks that make it more expensive to do business here, making it less likely that those 27 million unemployed and underemployed will be finding full-time work any time soon.

Obama wants to raise taxes on job creators.

His Environmental Protection Agency is set to restrict carbon energy emissions, making all products and services dependent more expensive, in addition to Americans’ home energy bills.  His Obamacare legislation and regulations are already making private care more expensive and less accessible.

On creating new businesses — the heart of creating new jobs — the number of Initial Public Offerings for new companies has dwindled to almost nothing under his watch.

When it comes to sound money, or the lack thereof, Obama’s Federal Reserve has created close to $1 trillion out of thin air, fueling inflation on family staples like food and energy.

To the jobs question, Obama’s solution has always been government-directed spending.  But, there’s already 22 million government workers nationwide at the federal, state, and local level.  The dwindling number of taxpayers cannot afford to employ millions more.   Only a dramatic expansion of the private sector can save us, which is what Obama’s policies are blocking.

The fact is, Obama is out of touch when he is more concerned with what Warren Buffett’s secretary pays in taxes than with what it would take to turn the economy around.  Raising Buffett’s taxes will not do that.

And playing class warfare will not create the millions of jobs Americans need to sustain their families.  But it might help Obama get reelected if Republicans are not prepared to counter it with the supply side of the equation.

Robert Romano is the Senior Editor of Americans of Limited Government.

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