Not Winning

The President's decision to push tax increase rhetoric is puzzling to me. Team O may believe they are firing up the base, but after several years of dismal economic results, it's hard to believe that the public is going to think that increasing taxes is a good plan. I think that the public has come to understand that increasing taxes on the wealthy, is only laying the groundwork to increase taxes on the middle class. From the LA Times:

Polls generally show voters are happy to tax the rich, with majorities agreeing with the president that those with the highest incomes should pay more taxes.

At the same time, polls also show that Republicans do better when they frame upper-income tax increases as a threat to small businesses, a group that voters tend to like. "No one should see an income tax hike next year — not families, not small businesses and other job creators," Senate Minority Leader Mitch McConnell (R-Ky.) said Monday.

The article doesn't say which polls, so I question their veracity. Further, and more importantly, Obama is certainly not serious about his proposal on two counts. The increases are not going to be passed in the House this year. But even if Obama squeaks through to re-election, passing his proposal would signal the death knell for the Democratic party. Why? Because the increase in top capital gains taxes and dividend taxes from 15% to 30% and 43.4% respectively. This will cause a big sell off in the stock market, as investments become much less productive. A stock market sell off will in turn harm the economy. The fallout in 2014 elections after 6 straight years of abysmal economic performance by Obama would be a catastrophe for the Democrats. This is why I don't think he is really serious.


This news comes as Romney and the Republicans outpaced the Democrats and Obama in June fund raising $105 million to $71 million. Polling is very close, with the WaPo reporting a 47-47 tie among registered voters. However, I keep thinking that gives Romney the advantage, because I expect two things to happen. First, undecideds tend to break for the challenger. Second, I think likely voter energy is still with the Republicans; the Supreme Court ruling and Obama outrages over attacking the Catholics are sure to fire up the Republican base.

However, it remains to be seen if Romney can put together an effective positive message for himself that also attacks the President. I was impressed with the speed of his counterattacks earlier in the campaign. Perhaps his team is strategically planning where to release their prodigious funding to best advantage. For the moment, no one is winning this race; but I believe that Romney has some fundamental advantages.

Quote of the Week

Comes from Arthur Laffer in today's Wall Street Journal:

It has always amazed me how tax cuts don't work until they take effect.

I know that KT has talked about paying enough in taxes to cover our deficits, but there are solid arguments to be made on the limits of raising revenue through the income tax. Hauser's law is an observation that, despite a variety of tax rates imposed since World War II, the percent of federal income tax receipts as a share of GDP has held remarkably steady at 19.5%. In practice, this means that the federal government should set tax rates in a way that encourages investment and saving. Only by growing GDP does federal income tax receipts grow.


I allow that other forms of taxation bring in revenue to the feds, but that is not the point of the current discussion. The combination of tax increases set to take effect in 2011 almost guarantee Obama a one term presidency, don't take my word for it, here is what tax experts H&R Block have to say:

Beginning in 2011, tax rates in effect prior to 2001 spring back into effect. The top income tax rate returns to 39.6 percent, and the special low 10 percent bracket is eliminated. Whether this will actually happen will be at the heart of a spirited battle in Congress.

Estate Tax Revived

For individuals dying after 2011, the federal estate tax returns with a $1,000,000 exemption and a 50 percent maximum rate. This assumes that Congress allows the estate tax to disappear in 2011, which is unlikely.

Increase in Capital Gains and Dividend Tax Rates

The tax rate reductions for long-term capital gains and dividends is scheduled to expire this year.

In 2011, the maximum long-term capital gains tax rate goes back up to 20 percent from 15 percent. A lower 10 percent tax rate is used by individuals who are in the 15 percent tax bracket. Their long-term capital gains had been tax-free since 2008.
In 2011, dividend income (other than capital gain distributions from mutual funds) is taxed as ordinary income at your highest marginal tax rate.

Child Tax Credit

The credit of $1,000 per eligible child reverts to $500 after 2011. After 2011, none of the child tax credit will be refundable to taxpayers unless their earned income is more than $12,550. This is one of the many Bush tax cuts currently scheduled to expire after 2011.

Payroll Tax Credit

Starting in 2011, the partial credit for payroll taxes paid is no longer available.

Decreased Section 179 Expense Deduction

Taxpayers who purchase qualifying business property may elect to deduct the cost of the property (new or used) in the year that it is placed in service. This is referred to as a Section 179 deduction. In 2010 and 2011, the maximum amount of property that may be taken as a Section 179 deduction is $125,000, as indexed for inflation. In 2011 and future years, the maximum deduction drops to $25,000.

College Savings Plans

Beginning in 2011, 529 Plans can no longer be tapped tax-free to pay for a computer or Internet access.

Tax Credit for College Tuition

The Hope credit is again limited to the first two years of college and is capped at $1,800. None of the credit is refundable if it is more than your regular income tax liability.

Earned Income Tax Credit (EITC)

Temporary increases in the Earned Income Tax Credit for filers with three or more children and the higher income levels for the phaseout of the credit are repealed.

The blog Emptysuit has a nice summary as well. The collective weight of these marginal tax rate increases will inevitably kill any economic recovery.

About That Tax Promise

Hows' that working out for you America?

1. Senate Dems plan to raise taxes on seniors depending on dividend checks for their income. (Actually on everyone, but I can outdo lefty dufus' with heart-wrenching headlines.) With the expiration of the Bush tax cuts in 2011, the tax rate on dividends for middle class Americans in the 28% marginal bracket is set to increase from 15% to 28% and all the way to 39.6% for those in the highest bracket. Not only is this a broken promise, what a way to encourage investment in the economy.

2. Dems now calling federal ObamaCare mandate a “tax”. Admittedly, this is so that the Obamacare mandate can pass constitutional muster in the Supreme Court, but hey, if they're going to call it a tax....

3. Dems to Allow Millions of Middle Class to Drift into Alternative Minimum Tax bracket, as previously reported in these pages. By not indexing the Alternative Minimum Tax for inflation millions of middle income Americans will be subject to the AMT. This happens when you have many otherwise legitimate deductions, such as charitable giving, that reduce your tax bill, but Uncle Sam wants his cut anyway. In years past, Congress has shielded middle class from these effects by raising the income level at which the tax kicks in. Their failure to do so now is surely a tax increase, because ordinary folks like myself will be paying more in taxes.

4. Obama Signs Federal Cigarette Tax Hike. Who do you think is paying this tax?

And what's on the horizon? The number of hints from the administration that they will propose a Value Added Tax are overwhelming. And will it come with the elimination of the income tax? (Don't forget to take my poll at right.) And what is cap and trade but a new tax on every American.

I'll close with this video about all the new taxes on Obamacare impact not just small businesses (most of whose proprietors make much less than $250,000) but how we are all hit with higher taxes.



So that's my answer to the left, when they ask how my taxes have increased under Obama as they sling epithets my way. That civil enough for you coffee partyers?