More for the rich

September 20, 2011

By David Cay Johnston
The views expressed are his own.

President Barack Obama this week started pitching his plan to cut U. S. taxes for everyone in 2012 and then in 2013 raise income tax rates for high earners, primarily those making more than $1 million, many of whom bear a lighter burden than a cop married to a nurse.

Two responses are certain.

There will be claims that economic ruin will follow once taxes go up. Never mind the proposed 2012 tax cuts are for virtually everyone. Never mind that the modest rate hikes would apply only to those who make more than 97 percent of their fellow Americans with most of the burden on those making more than $1 million. Never mind IRS data showing that tens of thousands of those whose increased taxes would increase their income tax rate by just 1.2 percentage points make more in a year than the median family earns in a lifetime.

Obama has also set a clever trap for anti-tax Republicans. Obama’s American Jobs Act would lower Social Security taxes for all workers and for all businesses in 2012. Republicans who vote against the bill would be voting against a tax cut. They would also be voting against a huge business tax break, letting business immediately write off all capital investments made in 2012.

The other, more pernicious attack will be on the best funded, most effective and most efficient government program around: Social Security.

The latest assault on Social Security comes from Governor Rick Perry of Texas, a Republican presidential hopeful who insists that social insurance for widows, orphans, the disabled and the old is a Ponzi scheme.

If Social Security is a Ponzi scheme then so are public education, businesses and the state government that has for decades employed Rick Perry.

The education of the children born to today’s kindergarten students must come from future tax revenues. The profits Wal-Mart makes in 2091 depend on people not yet born making purchases. And if Perry is elected president, his salary and presidential pension will depend on new money coming in.

Every enterprise depends on future income, which is where any similarity between legitimate activities and Ponzi schemes ends, though Perry seems ignorant of this.

Perry boasts that he was an awful student. Instead of being dismissed as a know-nothing, however, he is a serious contender for the most important job in the world, in part because many Americans have been persuaded that the word “elite” is not an accolade but an epithet.

Egging on Perry are people whose elite education suggests they should know better, like Washington Post columnist Charles Krauthammer, who has an M.D. and a Pulitzer prize. One need not be elite, which means “the best,” to know that Ponzi schemes are criminal enterprises that depend on secrecy to defraud.

In contrast, Social Security is an open book. It publishes exhaustive financial reports, all of which have proven reliable. Social Security’s overhead, at less than one percent, is a much smaller share of its budget than any large corporation or that multi-billion dollar enterprise known as the State of Texas. And Social Security has collected more than $2 trillion in advance to help pay future benefits through 2037. That surplus makes it an anti-Ponzi scheme.

Social Security’s projected $5.3 trillion shortfall sounds huge, but it is spread over 75 years, making its impact insignificant. This minor problem would shrivel if we just went back to the levy under President Ronald Reagan, when 90 percent of wages and salaries were subject to the Social Security tax instead of the 83 percent today.
The shortfall would vanish if we reversed our policies that discourage higher education, export jobs, drive down wages and savage our manufacturing, research and development prowess.

Most Americans are not old enough to recall when old ladies bought cat food on sale, not for a pet but for dinner. A half century ago more than a third of older Americans lived in poverty. Today fewer than 10 percent do because of Social Security.

More than a third of older Americans rely on Social Security for 90 percent of their income. The average benefit is just $14,124 per year, but many older Americans get only half that much, which Perry and Krauthammer tell us is more than we can afford.

Gentlemen, will that be Fancy Feast or Meow Mix for your fellow Americans who have not fared as well as you have fared?

Now let’s put the Obama plan, which has no chance of becoming law in the current Congress, in perspective. He would raise taxes on 534,000 of an estimated 166 million taxpayers in 2013 by an average of $39,182 each, the Tax Policy Center calculated. Their average income was $3 million in 2009, which is more than twice what the median income taxpayer earns in a lifetime of work.

Together these top earners made more money in 2009 than the 56.5 million taxpayers whose cash income was less than $25,000 and on average just $12,366.

To assert that we must not raise taxes at the top, but we must cut Social Security is to say this: America’s rich do not have enough and we must take from those with less to give the rich more.

Can we do better? Of course, but we won’t until we make it standard for politicians to develop their minds, and to understand taxes and public finance, enough so that we can call them elite.
(Editing by Howard Goller)


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The issue that many Americans face is that they do not understand the math.

Try explaining to your neighbor that a billion is a thousand million or that a trillion is a million million.

Watch the faces glaze over……

Posted by Missinginaction | Report as abusive

Go back to the constitution, equal protection under the law. Why should anybody pay a larger percent of their income than anyone else? If you are going to have an income tax at all, then help the economy – go to a flat tax, no exceptions, no exemptions, no deductions. Everybody would then have the same interest in keeping the govt down to size and eliminating wasteful duplicative programs.

Posted by zotdoc | Report as abusive

Missingtoninaction, I fully understand. I live in the West, most of my neighbors still think like 19th century cowboys. zotdoc, is the coffee ready yet?

Posted by PCScipio | Report as abusive

David Cay Johnston is dead wrong. No one is asserting that
America’s rich is wanting more, rather everyone is concerned
that spending by government is out of control. Every promise that Washington made was made without the revenues to pay for those programs and promises. They created those programs and enlarged it anyway, by borrowing money from the world to pay for them.
The programs should have stopped as soon as they resorted to borrowing money to pay for entitlements. They did not look to raising taxes at that time because serious questions would have been raised about the need for these programs. So now the piper has to be paid and they are trying to re-frame the issue as class warfare. It time to get rid of the liberals.

Posted by ponder | Report as abusive

When society has devolved into one that relies on sound bites and skewed information as the primary resource for decision making, all bets for reasonable outcomes become long shots.

One cannot submit too much information to the average American. They are simply incapable of processing the data and would rather rely on gut driven impulse derived from clinging to religion or defense inspired party affiliation…so Fox News and Right Wing talk radio will always be able to sell soap.

Speak the word Socialism, and large segments of the Republican base begin to salivate. (whether there is any basis that the term can be truthfully applied)
The same is true of “Gay Rights” and “Abortion” so regardless of what has worked for the greater good of our society, we are held hostage by the lunatic fringe bent on serving the rich and religious because their party says so.

That a foundational proven program to insure the least among us have sufficient income in old age or when debilatated is being attacked by a pro big business shill with ulterior financial motives comes as no surprise. What is surprising is the lack of wholesale outrage by the American people.

Keep up the good work.

Posted by NobleKin | Report as abusive


What an arrogant statement. “David Cay Johnston is dead wrong” – Really?

The man has written more books on the subject than you have probably read in your lifetime, and he is wrong?

And he is discussing Social Security, not the entire government (on which he would likely agree with the point you are attempting to make).

Mr. Johnston’s point is a question of raising taxes back to reasonable levels on those who can most afford them, or (as Perry and other Republicans have proposed) doing away with the social safety nets for the least among us.

You probably know damn well the “Starve the Beast” plan the Republicans have held dear for decades. And now they are trying cross the goal line.

If you are of the Darwinistic camp of every man for himself as Perry and the Tea Party audience of several days ago seem to be, then America has truly lost its moral compass. If you favor letting a millionaire or billionare keep an extra $40,000 or $50,000 out of their Million dollar a year salary, so grandmas and grandpas have to do their shopping at Petco, then you are as sick as the rest of them and America is doomed.

Perhaps you also believe the private healthcare insurance model is fine too?

Posted by NobleKin | Report as abusive

It is Obama who is proposing the actual “pernicious attack” on Social Security with his proposal to partially cut off its blood supply. Social Security withholdings are not a “tax” in the normal sense, as they are used solely to pay for Social Security distributions, which are ultimately paid back to the people who paid into Social Security in the first place.

Posted by Randy549 | Report as abusive

A good read here …. Mr. Johnston is amongst the few articulate people we have found who truly understand the ‘meat’ of the matter …. and this old Geezer really does like his candid and frank appraisal of political figures and policies …. in an era when so many ‘hedge their language & their bets’ he has secured the ethical & moral high ground … Much thanks for your words/work Mr. Johnston!

Posted by CanadianGeezer | Report as abusive

zotdoc: “Go back to the constitution, equal protection under the law” Funny that you’d invoke the 14th Amendment applying it to protect millionaires and billionaires from having to pay a little more in taxes, while failing to consider its application to the poor and Middle Class whose incomes have largely remained stagnant over the last few decades, and have actually begun to decline, while the cost of living has continuously risen.

Take healthcare, in particular. There are a lot of people who can’t afford our extremely expensive healthcare. Millions of working people. Why do you think a billionaire needs to be protected from having to pay a little more in taxes but a working stiff doesn’t need protection from rising healthcare costs that could ultimately cost him his life? Who really needs protecting here?

And let’s get something straight about Medicaid. That working stiff I mentioned in the last paragraph can’t qualify for Medicaid if he’s shown the responsible audacity to save money, to put away a nest egg for his retirement or his children’s college tuition. That money has to be spent on his medical bills before he can qualify for Medicaid. In other words, he has to be broke. Many Americans would rather skip the doctor visits and the prescribed medications than to spend all the money they’ve been saving all of their lives for them and their families. Where’s their protection? Are their lives really less important than the little extra the rich would be required to pay if Obama’s tax increase were to go through?

Posted by doggydaddy | Report as abusive

i grew up on a dead end street in a low wage earner family. both parents worked full time.i paid my way thru college started my own business at the age of 23. took 20 college extensions courses to help figure out my business. 30 years later i am in the top 1%. i still work a minimum of 12 hours a day, usually 15. i have been paying tax at the maximum rate, 35%. when you add in state and local taxes my tax burden is approaching 50%. that means i work for the us govt the first 6 months of the year. for what?
plain and simple. raise my taxes i’m retiring. and terminating 15 employees, all of whom are paying taxes at the 20% or higher rate.

there are thousands like me, sitting on the fence. will i hire any new employees? hell no. obama care, tax increases, new regulations at every corner.

are you listening? raise my taxes and i’m going to the house. these policies are decimating the job creators of this country.

Posted by zstar7 | Report as abusive