Sock it to the Billionaires!

The President gave a speech down in Austin recently. This was all about politics. Obama hit on a very popular theme with the DNC folks. He wants a tax increase on wealthy people. There is little doubt but that he will get what he is asking for. The section that I thought was important:

“If we want to reduce our deficit, our sacrifice has to be shared. And that means even as we’re making spending cuts, we also have to end the tax cuts to the wealthiest 2 percent of Americans in this country. (Applause.) It’s not because we want to punish success. It’s because if we’re going to ask Americans to sacrifice a little bit, we can’t tell millionaires and billionaires that they don’t have to do a thing.”

How could one argue with this kind of talk? Millionaires and billionaires are not carrying their share of the burden so we should tax the hell out of them.

The audience that I write to doesn’t like Obama very much. They also don’t like big government; they hate the financial institutions and the fat cats with big bonuses. So I’m interested to hear what might be said on this topic. Is Obama striking a chord with you? I understand if he does. But you need to look where this is headed. If you are young, with children, and have debt from education or a home and aspire for some degree of success in your life; beware. What Obama is proposing is headed your way.

When Obama talks of taxing millionaires and billionaires he is missing the mark. He is pushing for a higher tax on income. What he doesn’t get is that millionaires and billionaires actually don’t have that much income. Yes they have wealth, but it is very easy to avoid paying taxes on wealth. The people who will pay higher taxes are young people, not the rich old fogies that have bundles in the bank. I got this note from a young professional who works very hard and is far from wealthy. He does make a decent income and that income will get squeezed by the higher taxes that are coming.

I love it when Obama talks about taxing the “wealthy” when he talks of high taxable income. Since he targets people with high wage income, he’s targeting young people without much wealth that have a lot of debt (student, home, etc). The wealthy are mostly older folks, many of whom have lots of their money in muni bonds and assets throwing off capital gains. The wealthy are also foreigners who can invest in the US without US tax on their capital gains, and reduced US tax on dividends if a treaty applies, and generally, no US tax on interest income.

If you want to hike taxes on engineers, doctors, lawyers, accountants, airline pilots, and others with householders in high-earning brackets, fine. But it takes balls to call them millionaires and billionaires.

In the President’s speech he had this to say:

I don’t want a $200,000 tax cut that’s paid for by asking 33 seniors each to pay more than $6,000 in extra Medicare costs. I don’t want that. I don’t want my tax cut paid for by cutting kids out of Head Start or doing away with health insurance for millions of people on Medicaid, seniors in nursing homes and poor children and middle-class families who are raising a child with a disability like autism. That’s not a tradeoff I’m willing to make.

These sure sound like popular views. The President has defined the debate here. This is about billionaires on the one hand and seniors, Medicaid and Medicare recipients even kids with autism on the other hand. But actually the proposal to increase income taxes will hurt a different audience than those billionaires. Those that are going to get hit, the young lawyers, doctors, airline pilots and business people of all stripes are going to respond with their feet. They will not vote for leadership that puts the tax burden squarely on them.

The end result will be that the political pendulum will shift to the extreme right. The House, Senate and the White House will belong to conservatives. When that happens there will be a great unwinding of the social programs that Obama champions. And all those who think the solution is to tax wealth will be very disappointed with the outcome.

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