Wednesday, November 14, 2012

Why Increase Taxes if it does not Actually Increase Revenues to the Federal Government?

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 gains tax for purposes of fairness.

Gibson: But history shows that when you drop the capital gains tax, the revenues go up.

Obama: Well, that might happen, or it might not.1

It’s worth pausing to ponder what Obama is saying. Basically, he is saying that it doesn’t matter whether higher tax rates on the rich actually generate additional revenues for the government or not. This is not about government revenue. Rather, it is about Obama’s own basic notion of fairness which demands that the rich pay more. Perhaps—to take a cue from his father’s writings—if the highest income earners paid tax rates of “up to 100 percent,” Obama would finally be satisfied that they were contributing their fair share.

That’s right – Barack Obama Senior, our President’s father was a socialist who once wrote an article in the East Africa Journal – “Theoretically there is nothing that could stop the government from taxing 100 percent of income so long as the people get benefits commensurate with their income which is taxed”.2

Barack Obama Sr. himself, in 1965, published an article in the East Africa Journal which considered what a country should do when a large portion of its wealth is controlled by a small number of people at the top. Obama Sr. states his objective: “We need . . . to eliminate power structures that have been built through excessive accumulation so that not only a few individuals shall control a vast magnitude of resources as is the case now.” But how to achieve this? Obama Sr. proposes the use of state power to take over large parts of the private, or as he puts it “commercial,” sector. Obama Sr. says there is no reason to worry about economic freedom or individual rights; what matters is the good of society as a whole. “We have to look at priorities in terms of what is good for society and on this basis we may find it necessary to force people to do things they would not do otherwise.” Obama Sr. recommends that the state compel private firms to become what he calls “clan cooperatives.” These are basically government-regulated or government-managed companies that produce goods less with a view to profit than with a view to meeting the government’s own social and political objectives. Obama Sr. also proposes that the rich be dealt with through very high rates of taxation. Again, he’s not worried about how much the government is confiscating. “Certainly there is no limit to taxation if the benefits derived from public services by society measure up to the cost in taxation.”3

 As cited in the quotation above, Obama Sr. is even willing to consider tax rates up to 100 percent!

It’s remarkable that this paper by Obama Sr. has gotten so little media coverage. One would expect it to be on the front page of every newspaper and a lead item on the evening news, especially during public debates in America over taxes and massive government intervention in the healthcare and financial sectors.

Notice the two-part economic strategy proposed by Obama Sr. - Forced state control over private enterprise, and confiscatory tax rates with no upper limit. We will find it instructive to compare this to President Obama’s economic policies. For example, President Obama frequently talks about people being forced to pay their “fair share” in taxes, but he never specifies what that share is. Here, we have a document that explicitly states his father’s thoughts on the subject and may provide some guidance to the son’s own thinking. Yet for many in the media, these father-son comparisons are completely taboo. For them, it seems, the ghost of Barack Obama Sr. must be quietly ignored, so it cannot be seen haunting the corridors of 1600 Pennsylvania Avenue.

Clearly the shocker of the paper is the suggestion of a 100 percent tax rate. We may think: How can a man in his right mind propose something so ridiculous? We can imagine the income tax form, a mere postcard with just two line items: a) List what you earn, and b) Send it in.

Yes, by conventional economic considerations Obama Sr. is a crank. The law of incentives holds that it makes no sense to impose taxes that eliminate the motivation to work. But we know from the many writings of Barack Obama Senior and as well as the writing and activities of Barack Obama’s mother – that they were both virulent Anti Colonialist. So, when we insert the anti-colonial premise, we can see why confiscatory tax rates—even 100 percent rates—do make a kind of sense.

First of all; one must understand the mindset and ideas that run throughout anti-colonial theory. The central anti-colonial idea is theft. In this view, countries get rich through invasion and plunder, and people and corporations acquire wealth through their greedy exploitation of others.

Now imagine if you came to my house and stole all my furniture. In terms of those goods, what’s the appropriate tax rate for you? The answer is: 100 percent, because it’s not your furniture. Thus when you assume that income is not the result of effort or work; when you assume that it is not “earned”; when you consider income and wealth to be the product of greed, exploitation, and theft; then you have no problem with taking as much of that income and wealth as you can get away with. After all, the rich people and the corporations are a bunch of thieves; the money doesn’t really belong to them! The government shouldn’t seek to motivate thieves, but rather to punish them and seize their ill-gotten wealth.

The centerpiece of Obama’s re-election campaign is an attack on the rich, the millionaires and billionaires, the top 1% of income-earners in this country. From Obama’s point of view, these are greedy, selfish people who are not paying their appropriate share.

Obama champions the Buffett Rule, which calls for capital gains and dividends to be taxed at a minimum rate of 30 percent. The rule is named after investment guru Warren Buffett, who declared that at 15 percent he pays a lower rate of taxation than his secretary. Buffett’s observation seems to buttress Obama’s point that the rich get unfair tax breaks. In fact, however, capital gains and dividends are taxed twice. They are 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%. Moreover, when rich people have more of their own 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 10 years, a pittance compared to our annual trillion-dollar deficit. Even if Obama got his way, the Times conceded, his solution would “not to make an appreciable dent in our deficit.” In fact, it would not pay for a single one of Obama’s extravagant spending programs. 4

Notes & References

1 Transcript: Obama and Clinton debate, ABC news, April 16, 2008
2 Barack Obama Sr., “Problems Facing Our Socialism,” East Africa Journal, July 1965.
3 Ibid.
4 editorial, “the Buffet Alternative Tax,” Wall Street Journal September 20, 2011,

Excerpt from - Obama's America: Unmaking the American Dream by D'Souza, Dinesh (2012-08-13). Perseus Books Group.

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