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Yet this is just the beginning of Obama’s economic ignorance and mendacity. Increasing the capital gains tax rate, as the Buffet Rule perforce does, and letting the Bush tax cuts expire would target small businesses and lessen the investment capital needed to grow the economy and create jobs, at the same time it would fail at increasing tax revenues, which historically have increased when tax rates are lowered. Consider what happened after Ronald Reagan’s tax cuts. In 1981, the top 1% paid 17.58% of all federal income taxes; in 2005, this same cohort paid 39.38%. In 1981 the top 1% paid $94.84 billion (in 2005 dollars); in 2005 they paid $368.13, an increase of 288%. During this same period, taxes paid by the bottom 75% went from 27.71% of all tax revenues to 14.01%. More recently, the Bush tax cuts resulted in a 44% increase in revenues from 2003-2008. “The only conclusion,” Arthur Laffer concluded in 2008, “one can come to is that by raising statutory tax rates on the rich as proposed by the Democrats, the effective individual income tax rate won’t change, but the comprehensive household income earned by this group will fall, thus resulting in a sharp decline in tax receipts from the very highest income earners. If you want to get more tax revenues from the rich, you’ve got to make the rich richer, and to make the rich richer, you’ve got to lower tax rates.”
All this class-warfare rhetoric has nothing to do with fixing our economic problems by reducing the deficit, curbing government spending, and growing the economy. Nor is the issue “fairness.” By any metric, the U.S. already has a fair tax system, given that the top 10% pay 70% of all federal income taxes, while nearly half pay nothing. Indeed, the U.S. has the most progressive tax system among 24 OECD economies, as measured by the ratio of share of taxes paid to share of income among top earners. For example, the top 1% of earners paid more than 38% of all federal income taxes, but they earned 20% of all income. As a result of this burden on the highest earners, the top 10% of U.S. earners pay 35% more income taxes than does the same cohort in progressive heartthrob Sweden, and 22% more than in France.
This rhetoric of “fair-share,” then, is really about Obama’s reelection and his leftist ideology. The President has calculated that he can win votes with faux-populist attacks on “fat-cats” and thus obscure his tax-and-spend agenda whose ultimate aim is to increase the power of the government. In that way he can benefit his base and create ever more clients beholden to the feds. That’s what all this talk about “fairness” really means: redistributing income, always the way the enemies of freedom have gained power. As history shows, when democracies start to devolve into tyranny, unscrupulous leaders arise to foment class hatred by pandering to those who, as the Greek historian Polybius wrote, are “habituated to feed at the expense of others, and to have [their] hopes of a livelihood in the property of [their] neighbors.” That is what the “Buffet Rule” is all about: creating the “soft despotism” Tocqueville warned about.
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