Obama's America 2016 (Non-Fiction)(2012) Read Online Free PDF Page A

taxed as corporate profits—and America has one of the highest corporate tax rates in the world—and then they are taxed again as payouts to individuals. The real capital gains tax rate is closer to 45 percent. Moreover, when rich people have money they can spend it or invest it; the purpose of a relatively low capital gains tax rate is to encourage them to invest it and help foster innovation and job growth. Finally, as an editorial in the New York Times noted, the Buffett Rule would generate an estimated $50 billion over ten years, a pittance compared to our annual trillion-dollar deficit. Even if Obama got his way, the Times conceded, his solution would “not make an appreciable dent in the deficit.” In fact, I’d like to add, it would not pay for a single one of Obama’s extravagant spending programs. 3
    Rich people already pay a lot of taxes; indeed, they shoulder most of the nation’s income tax burden. Government data show that the top 1 percent of U.S. taxpayers currently pay around 40 percent of all federal taxes. The top 10 percent pay 70 percent of all taxes. About half of Americans pay no federal income tax, and nearly 25 percent pay no taxes whatsoever. Now these numbers reflect what the government takes in from various groups. But what percentage of their income do those groups actually pay? According to the Tax Foundation, the average federal income tax for the top 1 percent is 25 percent. The average for the middle-fifth of income earners is 14 percent. The average for the bottom half is 3 percent. Anomalies like Warren Buffett aside, it is simply false to say that the rich are paying less than the rest in taxes; they are actually paying a lot more. 4
    Never once has Obama made the case for why the rich ought to pay a higher percentage in taxes than they currently do. And there is a solid economic argument for avoiding confiscatory taxes on this group. During the Reagan years, economist Arthur Laffer famously devised his “Laffer Curve.” The curve posits that there are two levels of taxation that produce an identical level of government revenue. Imagine two scenarios: a tax rate of 0 percent and a tax rate of 100 percent. In both cases, the amount of revenue the government can expect in tax receipts is zero. In the first case the answer is obvious: the government doesn’t tax people, and so it doesn’t take in any money. But Laffer’s point is that a 100 percent tax rate produces the same result; if the state takes away everything that a group of citizens produces, then they have no incentive to work and so will produce nothing. Once this principle is grasped, the Laffer Curve becomes self-evident. Laffer’s core contention is that once the marginal tax rate—the rate on an additional dollar of income—reaches a certain point, it has such a deleterious effect on incentives that entrepreneurs will stop producing and the government will take in less money. Now no one knows exactly what this tipping point is, but tax policy for three decades has been based on keeping rates away from this tipping point. In recent years, some liberal economists like Emmanuel Saez have insisted that we are not at the tipping point yet; from Saez’s point of view, higher tax rates on the rich would not have a measurable impact on their productivity. 5
    One might expect Obama to join this debate, but he hasn’t. The reason is evident from a 2008 interview that Obama did with Charlie Gibson of ABC News. The topic was raising the capital gains tax rate on the rich.
    Gibson : George Bush has taken it down to 15 percent. And in each instance, when the rate dropped, revenues from the tax increased—the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
    Obama : Well, Charlie, what I’ve said is that I would look at raising the capital