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COMMENTARY: The Cliff: Stick it to the rich – a real no-brainer

By   /   November 29, 2012  /   3 Comments

By M.D. Kittle | Wisconsin Reporter

There’s enough division in this country to choke a donkey, or an elephant, or a RINO.

But there’s one thing on which a majority of Americans can agree: They have no problem sticking it to the rich.

M.D. Kittle

A new Washington Post/ABC poll shows six in 10 Americans support raising the marginal tax rate on income above $250,000.

President Obama has made a tax increase on the wealthy — or at least the perceived wealthy — a cornerstone in what he asserts is a balanced approach to dealing with the nation’s spiraling debt.

The president and Congress, playing a serious game of political chicken, reportedly are trying to come to terms on an agreement that would keep the U.S. economy from plunging headlong over the so-called “fiscal cliff“. If they can’t strike a deal by the end of the year, the inaction would trigger an expiration of the President George W. Bush-era tax cuts and deep spending cuts to the federal budget.

The bottom line, taxpayers would get hit with a hefty tax increase as the budget ax slices federal programs.

So, since the vast majority of Americans exist below that $250,000 line, a majority says, “Put it on the wealthy’s tab — or, “Just charge it to the Underhills,” for our “Fletch” fans.

Politics matter when determining where you stand on the issue.

The Washington Post/ABC poll finds 73 percent of Democrats and 63 percent of independents think taxing the rich more is a good idea, while 59 percent of Republicans are against it.

And it depends on the definition of rich. Those making $100,000 or better a year, certainly part of the 1 Percent crowd on just about any street corner in the world, support the tax hike 57 percent to 42 percent.

Of course, these are many of the same people who prefer a smaller government but are in favor of almost no spending cut to achieve that goal.

A Pew Research Center for the People and the Press poll in October found majority support for only two of 12 proposals to reduce the federal support.

Now, what options, pray tell, do you think this fickle brood supported? You guessed it. Nearly two-thirds signed off on raising taxes on annual incomes exceeding $250,000, and 58 percent of those polled said they were in favor of limiting corporate tax deductions.

Don’t even think about cutting federal education funding — 75 percent of those polled didn’t fancy that idea. And 61 percent said take your stinkin’ paws off me, you damn dirty ape, for our “Planet of the Ape” fans.

Majorities also opposed cutting military spending (56 percent) and funding for scientific research (54 percent), according to the poll. Another 57 percent say no to raising the amount Medicare recipients chip in for their health care, and nearly as many don’t like the idea of gradually raising the Social Security retirement age.

The Obama administration and Congress “are dealing with a public that is demanding solution to a problem which it has declared to be a major priority, but at the same time Americans are resistant, or divided at best, on the sacrifices that would be required to achieve a solution,” said Pew Research President Andrew Kohut. “The bottom line appears to be that if the deficit and related entitlement programs are to be addressed, it may well have to be in spite of public opinion, not in response to it.”

So, that leaves us with sticking it to the rich.

Simple enough, right? Those millionaires and billionaires got it coming to them. Why shouldn’t the uber-rich contribute more to pay for this federal mess? It’s a no-brainer. It is. Like most things that stem from emotion — frustration, resentment, rage — brains are not necessary.

What remains lost in the stick-it-to-the-rich approach to fixing Washington’s fiscal mess is the unintended consequences. Sure, billionaires would pay more, but so would a lot of businesses that file as individually owned businesses, such as S-Corporations and partnerships.

Obama and other supporters of the $250,000-rule argue that only 3 percent of such individually owned businesses would be impacted.

There’s a lot of economic power in that 3 percent.

S-Corporations and partnerships earning more than $200,000 a year may represent a small percentage of all personal income tax returns — just 1.2 percent in 2010, according to the IRS and a report by the nonpartisan Tax Foundation. But such businesses represent nearly 5 percent of adjusted gross income in the U.S.

“More importantly, S-Corporations and partnerships earning over $200,000 a year represented more than 97 percent of all income earned by these entities in 2010 due to net business losses at lower income levels,” notes the report.

There’s more:

“This not only means that most of the positive net income from S-Corporations and partnerships will face higher tax rates, it ultimately means that the most successful S-Corporations and partnerships in the U.S. will see a tax hike. This is important both because there are four times as many S-Corporations and partnerships than traditional C-Corporations (as of 2008), and S-Corporations and partnerships earned 26 percent more taxable net income in the US than C-Corporations – $1.4 trillion to $1.1 trillion,” stated the report.

Upping taxes on businesses that are the economic engine of a sluggish economy is asking for trouble. That’s a lot of discretionary income that goes to the government instead of back into the economy, where it can be used for purchasing power and job creation to combat historically high unemployment.

I’m pretty sure most people in the stick-it-to-the-rich camp haven’t given much thought to the impact of higher taxes on the battlefield of class warfare.

But that’s the thing about unintended consequences: They are no-brainers.

Contact Kittle at mkittle@wisconsinreporter.com

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  • Joe Pigeon

    Finally, someone gets it! And that’s not to mention the “hiring/employement power” of the 3%. I’m not 100% certain on the number, but I believe that 3% creates something like 35% to 45% of all jobs in the USA. So let’s tax them even more!! Stick it to ‘em!! Pay Uncle Sam instead of their employees or investing in new equipment, training for employees, etc. Obama either doesn’t understand this or, he DOES understand it, sees a pot of gold, and doesn’t care about small businesses. We’re all going to have to sacrifice something we don’t want to sacrifice people – wake up and smell the coffee. It can’t always be some other person’s problem/responsibility.

  • Brad

    Obama and the rest of the socialists talk and talk about raising taxes on the millionaires and billionaires, ad-nauseum. Then they try to raise taxes on anyone making more than 250 thousand dollars/year. Earth to Obama/socialists, 250k/year doesn’t make you a millionaire or a billionaire. You can easily see how irrational Obama is. He is really trying to sock it to the middle class again. Obamacare already has the middle class roped into a 500 billion dollar tax increase. Obamacare also stole 716 billion dollars from medicare. Guess who that money was intended for. That’s right, the middle class. If Obama gets what he wants, the middle class will disappear, and he knows it. But, these things are just the death throes of this nation. The U.S.A. is already gone.

  • Zimba

    This commentary makes no sense. By definition, S-corporations and partnerships themselves generally pay ZERO federal and state income taxes, they are income pass-through devices, and the income from those entities is taxed to their owners. If the owners are fortunate enough to be in the 250K plus taxable income bracket, they may pay at higher rates if either the Congress fails to act, or the Congress increase their marginal rates or pares back their deductions. There is NO proposal under which partnerships or S corporations will pay additional income tax.

    Secondly, we need to increase the rates on upper bracket taxpayers because that is where most of the income tax base has gone, as the owners and managers of businesses (most CEOs are really just paid managers, not “founding shareholders” of their companies) have steadily taken larger and larger slices of the pie off the top, while freezing or reducing wages and benefits of their employees. That concentration of wealth, and the steep decrease in the rates of taxation on the wealthy over the last 10 years, have significantly reduced the effective tax rate on the overall earnings in the economy. The lowest effective rate of 15 % is paid on dividends and capital gains, which are a much higher percentage of the income of the wealthy. Since we have been in a sustained extremely low rate of inflation, the result has been an artificially low rate of taxation on the income of wealthy investors, compared to the rates paid of ordinary middle class workers. Those workers pay social security contributions of 7.5% on almost all of their wages Plus the federal income tax rates starting at 15%. Wealthy investors without “wage slave” jobs may pay very little social security taxes and a maximum rate of 15% on capital gains and dividends.

    Lastly, from an economics standpoint, all of the facts of the current economy show that the recovery is stalled for lack of consumer demand, not from lack of investment. By all measures, there is a flood in investment dollars ready to go if companies can show sales potential from increased demand. But demand is NOT created from wealthy investors, who by comparison to middle class and working class, spend a much small portion of their income, because they don’t need to spend a large percentage. By contrast, most if not all income increases going to the middle class and working class will be spent, because they have no choice. That spending will create the demand that will drive business and job growth. Simply put, supply side economics is counterproductive when the economy is starved from lack of demand, not from lack of available investment dollars.