Obama’s Tax Policy A Disaster For The Middle Class

The Obama budget is a tax policy nightmare. He has minor corporate tax decreases which are more than offset by eliminating loopholes. In short, he wishes to increase corporate taxes. He wants to triple the tax on dividends from 15% to nearly 45%. In short, if a corporation pays out a dividend each dollar distributed could be taxed at nearly two thirds. This is supposed to be a grand budget that will get the economy rolling. One wonders how that is possible with taxes so high.

Obama will shoot back that the dividend tax would only increase for those wicked rich people earning over $250,000 a year. But in reality this tax will hurt all of us. Why? Because corporations aren’t going to pay dividends when the people who sit on the board of directors will be taxed at such a high rate, in addition to the corporate tax already paid. The company will instead reinvest the profits. Who does this hurt? It hurts the poor and middle class because we’re the ones who either benefit from a dividend check the most or we reinvest our dividends via our mutual funds. In short, we’ll be making less because of this tax.

All of this in the name of fairness, not economic sense. In Britain they increased the top income tax to 50%. It’s really 65% for those who own their business as they’re stuck paying a 15% socialist healthcare tax in addition to income taxes. Now that the tax is law, tax receipts have dropped dramatically. The socialist Liberal Democrats want to keep the rate high “to demonstrate the rich are paying their fair share.” Sound familiar? It matters not to these people whether these taxes are actually increasing government revenue. It’s all a demonstration.

During the depression Hoover and FDR increased income taxes. Each time they did revenue from income taxes dropped. This was so even when during the 30′s FDR increased the top rate to over 75%. The only taxes which increased government revenue were excise taxes, which are hidden taxes added to the cost of goods. FDR massively increased excise taxes on everything from gas to clothes. During the Depression those taxes adversely affected the poor and middle class while the upper class was largely unharmed by FDR’s massive income tax increases. The rich simply stopped working and earning money, which of course did nothing more than extend the Depression.

We’re not in a depression, certainly not like the one in the 30′s. But the proposals coming from Obama are much the same. Tax increases for the wealthy, which won’t produce any more income for the Federal government. There has been talk of increasing excise taxes on gas, cigarettes and other items. Michelle Obama wants an excise tax on sugar and junk food. All of this would hurt the poor and middle class, who would pay the overwhelming majority of such taxes.  

Nearly half of Americans pay no income tax at all. Under Obama, we are fast becoming a split nation of taxpayers and recipients of taxpayer dollars. The top 50% are paying nearly all of the income tax revenue. The top 1% pay over 1/3 of all income tax revenue. The top 10% pay over 70% of all income tax revenue. There comes a point where increasing taxes produces diminishing marginal returns. Britain is already experiencing this. With diminishing marginal returns you can bet that the economy is going to start slowing down as the rich stop producing because they don’t see the point in working for the government.

Obama wants to take us to this point. All for show, so he can run around declaring the rich are “paying their fair share.” Of course fair share is never defined. Obama’s budget is a disaster for taxpayers and the economy. It will lead to economic ruin and a prolonged downturn. Worst of all, it will hurt the poor and middle class as we won’t be able to reap the benefits of the rich investing or the benefits of dividends.