Why Obama should pay more in taxes
President Barack Obama wants to increase taxes on the wealthy, and surely is correct that this must be part of any serious plan to control the national debt. Consider the case of a wealthy couple who made $1.7 million in 2010, yet paid only 26.2 percent in federal income taxes — though the top rate supposedly is 35 percent, and the president says that figure should rise to 39.6 percent. The well-off couple in question is Barack and Michelle Obama, whose tax returns, just released, show they paid substantially less than the president says others should pay.
If Obama is in earnest about wanting increased taxes on the wealthy, then he should send the United States Treasury $182,998. That’s the difference between his Form 1040 Line 60 (“This is your total tax”) and what he would have owed at the higher rate (plus limits on itemized deductions) he himself advocates.
So why doesn’t he tax himself more? The Form 1040, after all, only stipulates the minimum tax an American must pay. More is always welcome. Obama should write a check to the United States Treasury for $182,998.
Wealthy people who say the rich should pay higher taxes — Bill Gates and Warren Buffett have joined Obama in declaring this — are free to tax themselves. If you believe the top rate should rise to 39.6 percent (Obama) or 50 percent (Buffett), then calculate the difference and send a check for that amount to the Treasury. Of course no one individual doing this, even a billionaire, would have much impact on the deficit. But if rich people who say they believe in higher taxes were willing to practice what they preach, this would prove their sincerity, making legislation on the point more likely.
“The most fortunate among us can afford to pay a little more,” President Obama said last week about debt and taxes. So why didn’t he? The president is covered by his own definition of “fortunate,” since his proposal calls for higher taxes on individuals earning more than $200,000 or couples earning more than $250,000.
Compared to the tax returns of the rich generally, the president and First Lady look good. They gave $245,000 to charity in 2010, or 14 percent of their income — admirable generosity, and a better number than posted by most recent presidents and vice-presidents.
Figures from the Internal Revenue Service show that in 2008, the most recent year for which statistics are available, the wealthy paid only about 17 percent of their income in federal taxes — less than the president’s 26 percent in 2010, and much less than the official top rate of 35 percent for the bulk of a well-off filer’s income.
That the wealthy as a group are paying 17 percent of their income as federal income taxes, down from 26 percent from the wealthy as a group in 1992, is a result of the tax cuts enacted under George W. Bush in 2001 and 2003, and extended under Obama last year.
The slashing of taxes for the wealthy is well-known — but Bush’s cut reduced taxes for typical people, too. The lower part of the rate structure is now so low that in 2008, 45 percent of American households paid no federal income taxes at all, according to the Tax Policy Center. Americans as a whole paid an average of just 9.2 percent of their income as federal income taxes.
Both figures are postwar lows. The Tea Party claim that federal taxes are rising is, simply, factually untrue.
Falling taxes for average people have played as much a role in the ballooning federal debt as have falling taxes for the rich. In turn, soaking the rich cannot, alone, tame the national-debt monster.
Calculations based on IRS figures suggest — only rough estimates are possible, as tax laws can change economic behavior — that raising the amount of income actually paid as taxes by the rich from the current 17 percent to 26 percent, what the Obamas paid, would bring in about $200 billion a year in fresh federal revenues. Increasing the figure to about 30 percent (likely actual result of the tax changes Obama advocates) would raise the new-revenue total to about $300 billion annually.
Such amounts would ease the deficit, but hardly represent a cure — government red ink is projected to hit $1.6 trillion this fiscal year. There simply isn’t a long-term deficit solution based only on taxing the rich. Social Security benefit cuts, and more taxes on the middle class, will be needed too.
Sustained 5-to-6 percent GDP growth would solve the deficit problem painlessly, by raising revenue without tax increases or Social Security cuts. While such growth, roughly double the current number, is possible, it seems unlikely.
Though tax increases alone cannot put the country’s fiscal house in order, the president should set a better example on his own tax returns.
That $245,000 the Obamas gave to charity, for example — deducting it on their Schedule A reduced their federal tax bill by roughly $85,000, and cut their Illinois state tax bill too. But you’re not required to deduct charitable giving, or to claim any tax favor. Deductions and tax credits are options. If you think the government deserves more of your income, don’t claim them.
Obama said last year that itemized deductions for the wealthy should be phased out — then on his own tax return, claimed a huge itemized deduction. Until those who advocate higher taxes for the well-off practice what they preach, the national debt situation may only get worse.