Opinion

Chrystia Freeland

The 1 percent vs. President Obama

By Chrystia Freeland
July 12, 2012

Why have the rich turned against President Barack Obama?

That has been a persistent theme of this campaign: We were reminded of it at the beginning of this week, when Mitt Romney’s team raised more money than the president’s for the second month running, and more colorfully in weekend reports of the Republican candidate’s lavish fund-raisers in the Hamptons.

If you were a Martian, or even a European, the animosity of America’s 1 percent toward the president might be rather mysterious. Although those at the bottom and in the middle are still suffering from the downturn that began in 2008, with unemployment above 8 percent, the affluent economy has bounced back quite smartly. The stock market has recovered, corporate coffers are overflowing with cash, and the luxury goods market is booming.

Even Wall Street, where hostility toward the White House is especially acid, has reason to be grateful. Bankers got the biggest government bailout of all – much more than laid-off workers or beleaguered homeowners received from this Democratic administration – and the president resisted calls from the left to nationalize the banks he rescued, as did the British.

Part of the answer is simple self-interest. As the economics writer Matthew Yglesias has argued, there is one easy and obvious explanation for the animosity of the rich toward the incumbent: He wants to raise their taxes significantly. That is certainly right. On Monday, Obama reiterated his support for letting the Bush-era tax cuts for household incomes of more than $250,000 expire, while keeping the lower rates in place for everyone else.

This is a powerful point. It can be tempting to imagine that the affluent might fret less about their tax bills than the poor, who are struggling to get by, but the elaborate tax avoidance strategies of superrich Americans suggest otherwise.

But this is about more than bank balances. Some of Obama’s most vehement critics in the private sector insist they are willing to pay higher taxes, if that’s what it takes to get the United States back on track. Their complaint, if you take them at their word, is instead with the president’s attitude toward them, toward their wealth and toward capitalism itself.

Their sense of insult is easy to mock: Do those testosterone-pumped Masters of the Universe really turn out to have the tender feelings of teenage girls? It is a mistake, though, to dismiss the outrage of the 1 percent just because it is so emotionally rendered. The truth is that Obama is telling a very different story about capitalism and its winners from the one Americans are accustomed to hearing, and it is no surprise that the rich don’t like it one bit.

Consider the two narratives on the campaign trail this week. In Colorado, Romney described those who make more than $250,000 a year with the Republican term of art — “job-creators.” And he warned that the president’s proposal to raise taxes at the top wasn’t bad just for the rich, it would hurt the whole country, too:

At the very time the American people are seeing fewer jobs created than we need, the president announces he’s going to make it harder for jobs to be created. I just don’t think this president understands how our economy works. Liberals have an entirely different view about what makes America the economic powerhouse it is.

Obama, meanwhile, insisted that “we love folks getting rich.” But his focus is different: “I do want to make sure that everybody else gets that chance as well.” One way to do that is to tax the rich. As a new television ad for the president argued this week, Obama’s plan is to “ask the wealthy to pay a little more so the middle class pays less, eliminate oil subsidies and tax breaks for companies that outsource.”

This is more than a fight about taxes. It is a fight about whether 21st-century capitalism is working for the American middle class and who should pay to fix it. The Republicans are telling Ronald Reagan’s story of trickle-down economics – the winners in the capitalist contest are “job-creators” whose prosperity helps everyone else. The wealthier they are, the wealthier all Americans will be.

The Democrats are challenging that win-win story of American capitalism. Their contention is that the U.S. economy is failing the middle class. They argue that those at the top need to contribute “a little more” to help rebuild the American middle. Even more threateningly, they point out, as in their critique of Bain Capital, that some of the business strategies that have enriched the elite have actually hollowed out the middle.

It is this last argument that most enrages the 1 percent – and it should. Obama’s most extreme critics delight in accusing him of being socialist and sometimes communist. That charge is not just overheated, it is plain wrong. But American capitalists are right to sense a challenge from the White House, which is about more than tax rates or bruised pride. The president is arguing that what works for the top of the United States isn’t working for the middle, and that is a criticism the country’s lionized elite hasn’t heard from its leader in a very long time.

Comments
79 comments so far | RSS Comments RSS

NO-BAMA!

Posted by Ray07 | Report as abusive
 

Well, my husband and I own a “small” business. We employ 15 people on a full-time basis and we’re in our early 50′s. I guess we fall into the super-rich category because we end up with taxable income around $300k. Between the self-employment taxes and federal taxes, we pay about 45% of income in taxes not counting flow-through sales taxes or personal property taxes.

Not going to say which candidate is right or wrong, but we’re sitting on 2 business plans for 2013 right now; one has 2 new positions to generate additional sales and provide support for new accounts; the other plan drops our 5 least profitable accounts so that we can reduce headcount by two positions to bring that taxable income under $250k. The positions impacted either way have salaries between $30k – $40k. Depending on how the tax ball bounces, we’ll implement plan a or b.

At the end of the day, we’ll personally be in about the same position but we will either employ 2 more people or 2 less people.

Would be interesting to know how many other small businesses are doing the same math.

Posted by TheWiseOne | Report as abusive
 

Never underestimate human emotions – no one likes to be demonized, be called evil, unpatriotic , have their successful efforts denigrated – it is a completely normal reaction. Having said that, it remains unexplained how the act of raising taxes will “improve” the economy – a demagogic policy based on envy and jealousy does not seem very uplifting. Moreover, it is very curious why progressives see enormous problems with the “rich’, like Romney, who made his money by working – the progressives seem to prefer having it handed to you – inherited like JFK or FDR – or better yet, marring it, like Kerry (all of whom far richer than Romney).

Posted by SayHey | Report as abusive
 

Most important….jobs should be created not shipped away,(see the Obama plan), and, of course, cancel out the benefits given by Bush to the higher incomes, that resolved nothing.

It is unimaginable that a millionare pays a smaller part of his income to taxes than Joe the plumber.

Romney made his money by working? …or did he do that by exporting jobs..and so, like too many companies now, act unpatriotic.

You cannot compete with incomes of a tenth of the going rate here at our cost level.

The only alternative, ….devalue the dollar by 50%? But then, outsourcing would be less profitable, would the import lobby allow that?

Posted by Checksbalances2 | Report as abusive
 

@TheWiseOne
Good to hear that you may be able to employ more people, as far as I know that means, that that would mean a positive track in the Obama plan…after all you will be employing people in the US….

If these jobs would be outsourced that would of course be a different picture.

Posted by Checksbalances2 | Report as abusive
 

Having lived many years in a “classless society” i.e. a communist country, I cannot believe our country is being pushed by an ideology on that path. That system was a failure that kept millions of people working hard without ever benefiting from their labor. The seeds of class warfare have been intentionally planted and they will bear fruit if this shameless rhetoric continues. What happened in the communist countries 50 years ago was the result of a national policy of intimidation and fear. What is happening today is the result of an elitist, power hungry president who wants to keep those who elected him dependent on his hand-me-downs. The percentage of people on welfare went up not only because of the terrible state of the economy but also because to have your basic needs fulfilled by the government requires little or no effort. Is this what we are aspiring to?
Getting rich 101: somebody had to have started somewhere, whether it was your great-grandfather or you, and future generations not only in your family, will benefit. I have attained the American dream through hard work and I know many of the “1%” have done it the same way. Since when are we begrudging another fellow American his success?
It’s been said that Americans are gullible. If the 2012 elections will not change anything we deserve that label and moreover deserve our fate.

Posted by LianaB | Report as abusive
 

It’s interesting, Chrystia, how most of the comments/responses above (54 as I write) come from readers who seem to miss the main points you make in this well-argued essay. You write of the how and why the 1% have “turned against President Barack Obama.” Most of the hostility toward the White House comes not from “laid-off workers or beleaguered homeowners,” you suggest, but from bankers who “got the biggest government bailout of all,” even though “the president resisted calls from the left to nationalize the banks . . . as did the British.” Why would this “bailed out group” be so hostile to the chief executive of the govt. that bailed them out? Part of the answer is, you note, “simply self-interest.” “He wants to raise their taxes significantly. . . . On Monday, Obama reiterated his support for letting the Bush-era tax cuts for household incomes of more than $250,000 expire, while keeping the lower rates in place for everyone else.”

That’s pretty straightforward. The “Masters of the Universe” of Tom Wolfe’s seminal 1987 novel BONFIRE OF THE VANITIES — the mostly white affluent males banksters who have employed such “elaborate tax avoidance strategies” to evade paying their fair share of the tax burden over the past 30 years — would prefer that President Obama continue to let them get the tax breaks to which they have become accustomed. What’s mysterious about that?

Well, you suggest, it goes beyond just putting an end to the tax breaks that have fattened their (offshore) bank accounts. They are angry because President Obama has the temerity to challenge their (master) narrative. As “job-creators” — “the Republican term of art” used to describe “those who make more than $250,000 a year” — “the president’s proposal to raise taxes at the top wasn’t bad just for the rich, it would hurt the whole country.”

In other words, “if you take them at their word,” it’s the president’s attitude “toward them, toward their wealth and toward capitalism itself” that is actually creating the animosity.

Yes, as bizarre as it seems to many of us, the “NO-BAMA” people continue to use the same old supply-side, trickle-down master narrative to defend themselves and the tax favoritism they received under previous administrations. If the president refuses to supplicate himself before the “business strategies that have enriched the elite [and] hollowed out the middle [class],” he is “either a socialist or a communist.” If I were a Martian — or an unemployed dittohead sitting at home cleaning my assault rifle while listening to Rush hold forth on race, class, economic theory, etc. — “the animosity of America’s 1 percent toward the president might be rather mysterious,” but it isn’t perplexing to me. It’s pretty obvious. It’s pretty straightforward. Thanks Chrystia.

Posted by rhknott | Report as abusive
 

It’s interesting, Chrystia, how most of the comments/responses above (58 as I write) come from readers who seem to miss the main points you make in this well-argued essay. You write of how and why the 1% have “turned against President Barack Obama.” Most of the hostility toward the White House comes not from “laid-off workers or beleaguered homeowners,” you suggest, but from bankers who “got the biggest government bailout of all,” even though “the president resisted calls from the left to nationalize the banks . . . as did the British.” Why would this “bailed out group” be so hostile to the chief executive of the govt. that bailed them out? Part of the answer is, you note, “simply self-interest.” “He wants to raise their taxes significantly. . . . On Monday, Obama reiterated his support for letting the Bush-era tax cuts for household incomes of more than $250,000 expire, while keeping the lower rates in place for everyone else.”

That’s pretty straightforward. The “Masters of the Universe” of Tom Wolfe’s seminal 1987 novel Bonfire of the Vanities — the mostly white affluent male banksters who have employed such “elaborate tax avoidance strategies” to evade paying their fair share of the tax burden over the past 30 years — would prefer that President Obama continue to let them get[enjoy] the tax breaks to which they have become accustomed. What’s mysterious about that?

Well, you suggest, it goes beyond just putting an end to the tax breaks that have fattened their (offshore) bank accounts. They are angry because President Obama has the temerity to challenge their (master) narrative. As “job-creators” — “the Republican term of art” used to describe “those who make more than $250,000 a year” — “the president’s proposal to raise taxes at the top wasn’t bad just for the rich, it would hurt the whole country.”

In other words, “if you take them at their word,” it’s the president’s attitude “toward them, toward their wealth and toward capitalism itself” that is actually creating the animosity.

Yes, as bizarre as it seems to many of us, the “NO-BAMA” people continue to use the same old supply-side, trickle-down master narrative to defend themselves and the tax favoritism they received under previous administrations. If the president refuses to supplicate himself before the “business strategies that have enriched the elite [and] hollowed out the middle [class],” he is “either a socialist or a communist.” If I were a Martian — or a unemployed dittohead sitting at home cleaning my assault rifle while listening to Rush hold forth on race, class, economic theory, etc. — “the animosity of America’s 1 percent toward the president might be rather mysterious,” but it isn’t perplexing to me. It’s pretty obvious. It’s pretty straightforward. Thanks Chrystia.

Posted by rhknott | Report as abusive
 

@rhknott
” the same old supply-side, trickle-down master narrative to defend themselves and the tax favoritism they received under previous administrations”

Nobody seems to realize that this system cannot work in a supply side, financial and commercially fully laissez faire (of the “old” capitalist countries’) globalized economy.

After all there is more return on investment in emergeing markets, the result of investing there or here should be more in balance with the cost of living there or here, otherwise the influence of the inbalance is too great on our changes (jobs) here and, not to forget, their changes over there to really leave poverty behind.

There incomes should be raised considerably, so that they can also afford the things they produce, giving us a break to restart some of the industries that were moved or have never been (from) here.

(see the IT production industry (Foxcom/….)

Posted by Checksbalances2 | Report as abusive
 

The 1% only care about money and their lives.

Posted by Parachute | Report as abusive
 

The logic used by TheWiseOne is severely flawed. One alternative supposedly being considered will “bring that taxable income under $250k” (from $300k). Why would you deliberately want to throw away your after tax income? Under Obama’s proposal you would be taxed at the current, historically low rates on the first $250k either way. If you made $300k (or more), taxes would be raised (but to rates still very low by historical standards) only on the portion over $250k – you would still get a significant amount of after tax income. In fact, your income on the amount over $250k would not be subject to the social security portion of the self employment tax, yielding a marginal tax rate at $300k potentially lower than the marginal tax rate at $250k!!

I think it is most unfortunate that some small business owners are so busy with the considerable day to day effort of running a business that they are unable to take the time to see through the flawed logic being propagated by the right wing about tax rates and small business employment.

Posted by QuietThinker | Report as abusive
 

@LianaB: Tax rates on the rich in the US were much higher during the 20th century, the middle class was much stronger, and we outlasted communism. Interestingly enough, about the same time communism fell, the US began deregulating as we embraced trickle-down economics. And we are obviously worse off for doing it. So, your argument that returning (emphasis on returning) to higher tax rates for the rich is a step towards communism doesn’t pass muster. History proves that.

Posted by dasein | Report as abusive
 

@quietthinker – every time you add staff, you create more risk for your company, which is basically creating personal risk. If we choose to not grow and reduce income to keep us below the threshold, we may have less net income, but overall avoid potential other costs and risks. All I’m saying is that at this point in life, if there is no perceived reward for doing taking this on, his, why even bother?

Posted by TheWiseOne | Report as abusive
 

Very well written.

It will be sad if the American people fall, again, for the false promise of Reaganomics. But, don’t be surprised….

Posted by JoeOvercoat | Report as abusive
 

Hola TheWiseOne – for what it is worth, your case would have more appeal to many of us if one of your plans called for hiring more people to actually create something to sell, as opposed to hiring two sales reps (if I understood your post correctly).

Posted by JoeOvercoat | Report as abusive
 

Obama and the rest of the hypocritical 1%’s on the left supported the foul-mouthed and bigoted OWS protesters, and Obama still has plenty of rich leftists supporting his socialist cause.

Oh sure, Obama laughs at and denies the “socialist” label and pretends he respects the great wealth which capitalism and only free-market capitalism has brought to modern society, but his true colors shine through every time he opens his mouth without his teleprompter.

Posted by Parker1227 | Report as abusive
 

What O has never explained is the rationale for his proposed tax increases. The sum total of the argument is that it’s “fair”. What will his government do with said funds? Well, spend them of course! On what? You won’t know until they’re doing it. But I assure you it won’t be on deficit reduction.

Posted by BigBlueFan | Report as abusive
 

To “TheWiseOne”:

The increased tax rate will only be be applied on the part of your income above $250,000. Your tax liability will be the same as anyone else’s for the first $250,000.

Posted by stanscript | Report as abusive
 

Obama’s upcoming budget has already been released, so what he plans to do with the money is readily available and common knowledge. Republicans are already complaining about it–money to keep fire, police and teacher salaries in place nationwide, programs to help returning veterans, infrastructure projects for roads, bridges and rail. And yes, the entire budget is balanced and leading to deficit reduction.

Posted by Nora22 | Report as abusive
 

I have to laugh at the ill-informed people who use the term “trickle down” to attack the most successful economic policies ever implemented in the United States. President Reagan inherited an economy in much the same shape as the one in 2008. Yet his polices produced an almost immediate improvement and by this stage in the recovery we had 8% growth (compared to a paltry 1.5% now!) along with lower inflation, lower unemployment, lower poverty, etc. The average income for all quintiles rose as did the net worth of all groups (as a whole). Anyone who claims it “didn’t work” or “only benefited the rich” is ignorant of history.

Posted by RealityHammer | Report as abusive
 

The premise that the 1% is lined up against Obama is laughable. Just who do you think attends his $50K per plate fundraisers? Do you know who George Soros is? And those “companies that pay no taxes” would be GE, headed by Obama’s very own “Job Czar”, Jeffery Immelt.

Stop being such a lying hypocrite!

Posted by RealityHammer | Report as abusive
 

Everyone keeps forgetting that married couples who make $250k are NOT in the 1%. These people are just hardworking, successful middle class folks. They aren’t sitting around living off dividends or other income from investments. Why does Obama hate successful women so much? These are the ones paying for childcare and for people to clean their houses because they don’t have time to do it all. They aren’t rich. They are just getting by, too. Oh, yeah… and employing other people to help them get things done. Hmm…

Posted by duh1977 | Report as abusive
 

@parachute – the 1% care about their money and their lives? – and that makes them different from everyone else because…??

Posted by SayHey | Report as abusive
 

@TheWiseOne This is what I don’t understand (partly mentioned by other commenters): As taxes are always a small fraction of additional income, why is it ever a good idea not to pursue additional income, the vast majority of which you’d keep?

Your subsequent reply — the additional costs and risks which come from any expansion — don’t apply to your initial point, which was that on a purely financial basis you wonder “how many other small businesses are doing the same math.”

The math is in your favor, unless you were going into a higher marginal rate (and even then it would still be in your favor to a somewhat lesser extent).

The best investment advice I ever got was, never make a decision based on the tax consequences. I wonder how many small business people are obsessing details which is at odds with their common business sense.

Posted by johncabell | Report as abusive
 

Back to the “married people who make $250k together are not necessarily in the 1%” comment.

Two people who each make $125k/year (“top 14%”) (think nerdy, hardworking engineers) by virtue of marriage get promoted to the “top 4%”. They are not in the top 1%, but Obama hates successful women and thinks that as a married “14%-er”, she and her husband should pay their “fair share.”

How dare two successful middle class people get married! That is something society should discourage. According to Obama, apparently women would be better off at home than working at productive jobs.

Posted by duh1977 | Report as abusive
 

@RealityHammer 30/7 1.38

Reagan was in a far better global position as anybody else since. In his (and Thatcher’s)days, during the end of his term in office the European east block turned just away from communism , China was still blocked from western influence, India was still a classic society. In short the BRIC did not exist.

This means that the West and Japan were the only mass producing modern economies in the world. So the supply side was still the west and Japan, with a fairly equal income level.

That has changed dramatically since the mid nineties (Internet and Laissez Faire supply side economics are to blame for that..

See today’s item about the new treaty with South Korea, that will not work, because American (as well as European) businessmen find it much more profitable to export work and import goods than to keep jobs and export goods.

The difference in cost level is too high, that’s why, That difference should be eliminated and the only way to do that is by means of (heavy..fully compensating..) import duties (Lost Jobs tax)

Posted by Beobachter | Report as abusive
 

@RealityHammer

Actually Reagan got 8% growth with massive amounts of government spending. Of course you won’t believe me on that because Reagan is your demi-god.

http://en.wikipedia.org/wiki/File:Budget _Deficit_1971_to_2001.png

Wanna hear something else ironic, Obama-care was first proposed by the Heritage foundation and was Bob Doles plan on how to control health care costs with the individual mandate being being pumped as the ‘no free rides’ idea.

http://www.forbes.com/sites/aroy/2011/10  /20/how-a-conservative-think-tank-inven ted-the-individual-mandate/

Posted by JulsMan | Report as abusive
 

@RealityHammer

Reagan grew the economy with massive amounts of government spending. Same formula you accuse Obama of using. Only Reagan didn’t have a EU meltdown dragging things back down.

http://en.wikipedia.org/wiki/File:Budget _Deficit_1971_to_2001.png

Posted by JulsMan | Report as abusive
 

{As a new television ad for the president argued this week, Obama’s plan is to “ask the wealthy to pay a little more so the middle class pays less, eliminate oil subsidies and tax breaks for companies that outsource.”}

Is that all. Just a little more?

Let’s consider how much the OnePercenters have been getting over the past two decades, whilst average household incomes have stagnated:

Year Top 1% income share
1990 12,98% (of Total Income)
1991 12,17
1992 13,48
1993 12,82
1994 12,85
1995 13,53
1996 14,11
1997 14,77
1998 15,29
1999 15,87
2000 16,49
2001 15,37
2002 14,99
2003 15,21
2004 16,34
2005 17,68
2006 18,06
2007 18,33
2008 17,89
2009 16,68
2010 17,42
(From Global Incomes Data Base, Paris School of Economics)

And they are afraid we might ask them for a “little more”? We should be asking for a helluva lot more.

We should take the Tax Code, dump it, rewrite it and place Marginal and Capital-Gains Taxation back up to where it was before Reckless Ronnie brought them tumbling down from levels above 70%.

Then, just maybe, they might begin then to pay a fair share of the tax burden.

Posted by deLafayette | Report as abusive
 

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