By Paul Craig Roberts
March 29, 2009
Obama and his public relations team have made it appear that
his trillion dollars in higher taxes will
fall only on "the
rich". Obama stresses that his tax increase is only
for the richest 5 percent of Americans while the other 95
percent receive a tax cut.
The fact of the matter is that the income differences within
the top 5% are far wider than the differences between the lower
tax brackets and the "rich" American in the 96th
percentile.
For Obama, being "rich" begins with $250,000 in
annual income, the bottom rung of the top 5 percent. Compare
this "rich" income to that of, for example, Hank
Paulson, President George W. Bush’s Treasury Secretary
when he was the head of Goldman
Sachs.
In 2005 Paulson was paid
$38.3 million in salary, stock and
options. That is 153 times the annual income of the "rich" $250,000
person.
Despite his massive income, Paulson himself was not among
the super rich of that year, when a dozen hedge fund operators
made $1,000 million. The hedge fund honchos incomes were 26
times greater than Paulson’s and 4,000 times greater
than the "rich" man’s or family’s $250,000.
For most Americans, a $250,000 income would be a godsend,
but envy can make us blind. A $250,000 income is not one that
will support a rich lifestyle. Moreover, many people prefer
lesser incomes to the years of education, long work hours and
stress of personal liability that are associated with many
$250,000 incomes. In truth, those with $250,000 gross incomes
have more in common with those at the lower end of the income
distribution than with the rich. A $250,000 income is ten times
greater than a $25,000 income, not hundreds or thousands of
times greater. On an after-tax basis, the difference shrinks
to about 6 times.
The American tax code taxes the $250,000 income at the same
rate as it taxes a $100,000,000 or higher income. On an after
tax basis, after the federal government grabs 30% in income
taxes and state government grabs 6%, the "rich" man
or woman or family earning $250,000 has $160,000. In New York
City, where there is a city income tax in addition to state
and federal, this sum diminishes further. State sales taxes
take another 6 or more percent of most consumption expenditures.
When all is said and done, the after-tax value of a $250,000
income in New York City is about $140,000.
Is this rich? It might be in a small town in Alabama, but
not in New York City. The "rich" person or family
won’t be purchasing a Manhattan apartment, much less
a brownstone. They won’t be driving a luxury car. Indeed,
they won’t be able to afford a parking garage for an
economy car. If they fly anywhere, it won’t be in a first
class seat.
For the most part, $250,000 incomes are located in large cities
where the cost of living is high. For example, a husband and
wife who are associates at major law firms, each of whom works
60 hour weeks and has no job security, earn $125,000 each.
They might both have student loans to pay down. For the Obama
administration to lump these people in with Hank Paulson or
billionaire hedge fund operators is propagandistic.
What is the difference between the $250,000 "rich" income
and the $245,000 "non-rich" income? After Obama’s
tax scheme goes into effect, the $245,000 income will benefit
from a tax cut, and the $250,000 will have a tax increase.
Will people in the 96th percentile ask for pay cuts that will
drop them into the 95th percentile?
In America, the truly rich are those in the top 0.5% of the
income distribution. These are the people with yachts, private
airplanes, and who are still rich after they lose half their
wealth in a stock market collapse caused by government policy
that accommodated financial gangsters.
"Oh well, I was worth $600,000,000 last year and only
$300,000,000 this year. Perhaps we should stop drinking $1,000
bottles of rare vintages and move down to $100 a bottle wines.
Probably shouldn’t buy that new yacht or that villa in
the south of France."
The upper middle class with $250,000 gross incomes are major
losers of the financial collapse. Many of the people in this
income class are leveraged to the hilt in order to maintain
appearances and can be swept away as easily as the very poor.
But those who were frugal and invested for their future have
lost 50% of their savings. These wiped out people are the ones
who will bear the brunt of Obama’s tax increase.
If the tax rate on a multi-million dollar annual income goes
up by 5 percentage points, the cutbacks won’t really
affect the lifestyle. But for the $250,000 gross income group,
it means no prospect of private schools and Ivy League education
for the children, who will be attending state colleges with
the rest of the non-rich.
Obama is attacking the only income class that has any independence—the
upper middle class professionals. The real rich are few in
number and seldom present any opposition to government. Recently,
the New
York Times reported (March 23, 2009) that the 400 richest
Americans’ "share of the nation’s total wealth
has nearly doubled to more than 22 percent." The average
income of the 400 richest Americans is $263 million annually.
That is 1,052 times the income of the "rich" $250,000
income.
What the Obama administration is really doing is taxing ordinary
people in order to bail out the super rich. The 95% of Americans
who get the tax cut will find that it is offset many times
by the depreciation in the dollar and the raging inflation
that will result from monetizing the multi-trillion dollar
budget deficits made necessary by the bailouts of the banksters.
In the United States, government has become expert at manipulating
both left-wing and right-wing ideologies. It keeps those on
both ends of the spectrum set at each other’s throats
in order to ensure the government’s continuing independence
from accountability.
Historically, the definition of a free person is a person
who owns his own labor. Serfs
were not free, because they owed
their feudal lords, the government of that time, a maximum
of one-third of their labor. Nineteenth century slaves were
not free, because their owners could expropriate 50% of their
labor.
Today, no American is a free person. The lowest tax rate,
not counting state income, property tax and sales tax, is 15%
Social Security tax and 15% federal income tax. The "Free
American" starts off with a 30% tax rate, the
position of a medieval serf.
In medieval Europe, when tax rates reached beyond 30%, serfs
rebelled and killed their masters.
-----
Paul Craig Roberts was Assistant Secretary of the Treasury
in the Reagan administration. He was Associate Editor of
the Wall Street Journal editorial page and Contributing
Editor of National Review. He is coauthor of The Tyranny
of Good
Intentions.
Paul Craig Roberts can be emailed
here
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