The Endless Insanity and Hypocrisy Of The Democrats When It Comes To The Bush Tax Cuts

In all likelihood, the first and possibly only significant action that will be taken by the upcoming lame duck session of Congress is whether or not to restore the Bush income tax cuts. The question will be if they are to be restored to the original higher levels, will it be across the board, or only for income levels less than $250,000. The election is just a week old and already the long knives are out with the Democrats wanting to keep the Bush tax cuts in place for those families earning less than $250,000 and the Republicans wanting to keep the tax cuts in place for all Americans.

Before we get emotional about the topic, let's consider some hard data and facts, starting with historical tax trends from the National Taxpayers Union:

• In 1999, the top 1% of all income earning Americans paid 36% of all income taxes, by 2008 (the last year detailed tax return data is available), that percentage had risen to 38%.
• In 1999, the top 5% of all income earning Americans paid 55% of all income taxes, by 2008 that percentage had risen to 59%.
• In 1999, the top 10% of all income earning Americans paid 66% of all income taxes, by 2008 that percentage had risen to 70%.
• In 1999, the top 50% of all income earning Americans paid 96% of all income taxes, by 2008 that percentage had risen to a whopping 97%.
• In 1999, the bottom 50% of all income earning Americans paid 4% of all income taxes, by 2008 that number had dropped to 3%.

Thus, by 2008, roughly half of the country was paying the entire freight when it comes to income taxes and those making the most money paid more and more.

Consider a few more facts:

• According to analysis done by the Heritage Foundation, in order to close a one TRILLION Obama budget deficit, the top tax rate would have to be raised to 134%, i.e. higher earning Americans would have to give all of their annual income to the Federal government plus another 34%. This would just cover a TRILLION deficit and would not reduce the national debt. Since the first three years of the Obama administration is likely to run deficits in the $1.4 TRILLION range, the 134% figure is conservative.
• According to most sources and my own calculations, restoring the Bush tax cuts on those American families and small businesses earning over $250,000 would annually return an additional $70 billion of household wealth to the Federal government. However, this $70 billion is only about 5% of the deficit spending the Obama administration does in a single year, i.e. it will not come close to shutting down the deficit.
• Late last year we ran a blog post that worked off of numbers from a Fortune Magazine study and analysis. The Fortune article listed out the richest 400 people in the country and their total net worth (not their income). If you added up the total net worth of all 400, you come to a total of $2.7 TRILLION. Thus, if the Federal government confiscated everything those richest four hundred Americans possessed, it would only pay off about 60% of the deficit that the Obama administration will run up in its first three years. Since the last person on that list was worth about a billion dollars, if the government confiscated the total wealth of the next 400 richest Americans, its take would be substantially less than $400 billion, still far less than the Obama deficit pattern.
• According to my research of 2008 IRS tax tables, the number of American families who had more than a million dollars in income in 2008 was 321,294. If you divide this number by the approximate 155 million U.S. households, you find that less .3% of households in this country make a million dollars a year.

All, the facts are on the table. The higher earning American households pay a very large percentage of the total income taxes in this country, regardless of where you make the cuts (e.g. 1%, 5%, etc.). In fact, half of America is getting a free ride on income taxes since they pay a very, very small percentage of the total. No matter how you cut the data, raising the tax rates to over 100%, confiscating the wealth (not the income) of the richest Americans, expecting .3% of Americans to fix the out of control spending of the political class, etc., you cannot come close to closing the gaping budget deficits that the Obama administration and the Democratic Congress are and will be ringing up if nothing changes.

Thus, the facts get us to the hypocrisy that is the Democratic Party on this issue. Consider the following definition of hypocrisy:

"The practice of professing beliefs, feelings, or virtues that one does not hold or possess."

Now apply it to the Democrats:

• No talk about financials can begin without bringing Nancy Pelosi into the discussion. When she became Speaker of the House back in 2006, one of her first, famous quotes was that Congress, under her leadership, would operate as a "pay as you go" operation. This brave talk meant that if the Federal government wanted to increase spending in one government area, it had to reduce spending somewhere else beforehand. Noble thought, hypocritical implementation. Since 2006, Federal deficits have skyrocketed to well over a TRILLION dollars a year, three times higher than the worst Bush deficit, which was incurred under Pelosi's watch. Looks like that "pay as you go" process has not yet kicked in, four years after she became House Speaker.
• President Obama says that those Americans making over $250,000 a year need to have higher tax rates in order to close the budget deficit. It's almost as if he is blaming and reprimanding this subset of America for our government budget problems. The hypocrisy here is that those making over $250,000 a year did not create the huge budget deficits, the political class, primarily the Democrats did. Anyway, as we saw above, even if the tax rates for those making over $250,000 a year were raised it would hardly make a dent in the Obama deficits.
• Final hypocrisy: one might believe the President if he vowed to take the $70 billion and dedicate it solely to budget reduction. At least then you could possibly believe that he possessed the beliefs, feelings, and virtues of truly wanting to reduce the deficit and national debt. However, he has not made that promise and very few Americans are going to trust the political class to wisely use those additional taxes, their track record of wasting taxpayer dollars is just too overwhelming. Those additional funds would be lost.
• If the President was really serious about reducing the deficit and had that as true belief and priority, he would restore all of the Bush tax cuts. If he did that, he could get a substantial hit on the deficit with an additional $3 TRILLION annually flowing to the Federal government. Now we are talking real deficit reduction action. But, alas, he does not dare to that from a political survival perspective, he does not have the leadership courage to truly make a definitive statement on deficit reduction. Thus, he is hypocritical in saying deficit reduction is a priority but will not take the really bold step to back it up.

Now let's discuss the definition of insanity:

"Extreme foolishness or folly."

• The obvious folly is that the numbers do not add up. You cannot raise the rates high enough to overcome the folly of Obama's extreme deficits. You cannot confiscate enough wealth of the richest Americans to overcome the folly of Obama's extreme deficits.
• The next folly is the fact that American is almost always led out of recessions by small businesses and their hiring of more workers. To add to the tax burden of the small business sector, many of whom file with their household income tax returns, when we cannot get unemployment to decrease, is pure folly. Now, many of those favoring raising the taxes on small businesses via increasing the income tax burden on those Americans earning over $250,000 a year will say that a very small percentage of small businesses make over $250,000 and most small businesses would not be affected. To them I would say: why take any job creation potential off of the table, no matter how small, especially since the political class is likely to waste the higher taxes in economically unproductive ways?
• President Obama has tried to defend these tax increases by saying that people like Warren Buffet will not increase his spending if the tax rates are not raised. And he is probably right. However, how many "Warren Buffets" are there in the country? The argument of the President is pure folly. Less than .3% of the country earns over a million dollars a year and only about 3.3% of American make over $250,000 a year. It is these Americans, the 3% making between $250,000 and $1,000,000, who would spend the money they would retain. They would spend it on iPods, skating lessons, restaurant meals, movie tickets, etc. Given the choice of sending the additional $70 billion to Washington where it is likely to be wasted or not make much of a dent in deficit or injecting it into the economy, the non-insane thing to do is try and get the economy going again with consumer spending.
• What is really foolishness and folly is to spend so much time arguing over $70 billion when so much more could be harvested from our bloated government, a harvest that would drawf the tax increases. Just shutting down the political earmark process and waste would free up almost $20 billion a year. Cutting government social program fraud in half would free up another $49 billion a year. Thus, just these two actions alone would almost equal the $70 billion. Bringing home the hundreds of thousands of troops we have unnecessarily stationed around the world would reduce spending by hundreds of billions of dollars. Trimming the Federal government workforce by just 10% would save billions more. The CATO Institute, which is going through the entire Federal budget, line by line, department by department, has already itemized $600 billion in savings and they are not even done with their review. That is where our political class focus should be, saving hundreds of billions of dollars by cutting unnecessary spending and reducing fraud, not wasting their time on the Bush tax cuts and who should continue to benefit from them.

Thus, my view of insanity and hypocrisy regarding the Bush tax cuts. Our politicians are always focused on the wrong thing. If budget deficit reduction is what everyone wants, then do it boldly and courageously, do not do a nickel/dime approach, an approach that will further divide the country, will have a negligible impact on the deficit, will probably have some type of dampening effect on the economy's recovery, and which would strip higher earning Americans of more of their freedom.

I close with a thought and quote from Dr Martin Luther King, Jr. If the devastating, rampaging beast of skyrocketing Federal government spending is not stopped soon, it is not only those earning over $250,000 a year that are in danger. Eventually, as the numbers above prove, the political class will eventually have to come after those earning over $200,000 to feed the deficit beast, and then they will have to come after those Americans earning over $150,000 to feed the deficit beast, and so on down the line. Dr. King once said:

"An injustice anywhere threatens justice everywhere."

Demonizing those that earn a lot of money in this country is an injustice. Unless we can get the government to start spending less, that injustice of high taxation without any taxpayer benefit will spread to us all.

Note #1: As a follow up to this issue, tomorrow's post will review some of the great work and analysis being done by some smart Americans to fairly, strategically, and effectively slash government spending with minimal impact on most Americans. Their analyses are far deeper, better, and more likely to succeed than the shallow, insane, hypocritical, and divisive debate the political class is likely to have.

Note #2:  Not addressed above is the potential that some readers may actually think that the rich do not pay enough in taxes in this country. That is certainly their right to feel that way. But please do not try to convince me that having the rich pay more in taxes is good for the country. It is not. Having the government spend less is what is good for the country and is the only way for us to get  us out of the economic rut we are currently in. We cannot tax our way out of our high national debt, regardless of who pays more taxes.







 Our recent book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Please visit the following sites for freedom:



http://www.cato.org/

http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/

http://www.reason.com/