Last week, President Obama reversed course once again and now wants to raise taxes on the "rich" making above $250,000 per year. Obama is in dire need of additional revenue after proposing a $3.8 trillion 2011 budget -- containing the largest deficit in U.S. history at an estimated $1.6 trillion. Yet his latest share-the-wealth proposals make little sense.
Obama never distinguishes between the super-rich and the well-off. At one point in justification, the president scoffed, "I don't need another tax cut, Warren Buffett doesn't need another tax cut."
But Warren Buffett, unlike the building contractor or family dentist, is the world's third-richest man, worth nearly $50 billion. And Obama is probably the most privileged person on the planet, with all of his expenses covered -- from a nice free mansion at 1600 Pennsylvania Avenue to a huge private jet.
The rich and the poor are not separated across an impenetrable barrier. The president's $250,000 line in the sand is actually quite fluid. Most of those who make incomes above it did not do so 10 years ago -- and they won't, on average, 10 years hence. The income of well-off professionals and small-business people fluctuates widely as they ascend, peak and descend in earnings -- given factors like health, age, and uncertainty in employment and business. It would be more accurate to say that raising taxes on the better-off is a sort of punishment for those who break into the top brackets for a few short years and try to be careful to save what they make and not spend what they don't.
The super-rich pay in taxes a far smaller percentage of their income than do the well-off. An array of blue-chip tax lawyers and Byzantine write-offs -- and paying at the capital gains rates rather than the income tax rates -- allows the Buffetts of the world to praise higher taxes while they connive to pay at lower rates than most others. The IRS, for example, reported that the 400 richest Americans paid only 17 percent in federal income tax. A corporation like General Electric -- run by Obama pal Jeffrey Immelt -- paid no taxes at all on its $14.2 billion in worldwide profits.
Nearly half of American households pay absolutely nothing in federal income tax. For them, the once-dreaded April 15 tax day is more a welcome time of tax credits, rebates and refunds. In February 2011, American households received more than $2.3 trillion in direct government support, more than was collected during those 28 days by the Treasury in personal taxes. In contrast, the now-demonized top 5 percent account for almost 60 percent of all federal income tax revenue -- a higher percentage than anywhere else in the Western world.