by Dr. John A. Sparks
President Obama is now openly proposing tax increases on at least two important fronts as part of his “solution” to the growing debt crisis.
The president’s favorite approach is to talk about the “wealthiest Americans.” In his speech on April 13, he proclaimed that he will do away with the “Bush tax cuts” for the rich as soon as he has the opportunity. Just a week later, April 21, he said that wealthier taxpayers like him should be willing to pay “a little bit more” to prevent various social programs for the elderly and the young from being cut. Of course, this is his way of preparing high-earning Americans for a jump in their federal income tax rates. Apparently, he believes that they are not currently doing their part or paying their fair share.
Listening to President Obama talk, one would think that the present federal income tax system is a flat-rate system where everyone, no matter what their income, pays at the same rate. Of course, the current system is, and has been for a long time, a steeply graduated tax system where the highest earners pay at the rate of 35 percent on the topmost portion of their earnings while low earners pay at the rate of 10 percent. Now, Mr. Obama wants to push the highest rates even higher, to near 40 percent. President Obama believes, perhaps rightly, that soaking the rich will not hurt him politically.
But the president is targeting more than the wealthiest. In fact, in his desperation, he is apparently now prepared to impose heavier tax burdens on middle-income Americans as well. How? In a recent speech he stated that he wants to raise the “cap” on Social Security. The cap on Social Security taxes works this way: If an employee earns more than the cap (currently, $106,800) in a given tax year, Social Security taxes are not deducted from the amount of earnings over the cap. So, for example, if an employee earned $126,800 in 2010, he would pay 6.2 percent in Social Security taxes on the first $106,800, or $6,621.60. The employer would also pay 6.2 percent. On the overage—the $20,000 of income beyond the cap—neither the employee nor the employer would pay any Social Security tax.
However, if President Obama has his way and the cap is raised by, let us say, $20,000, to $126,800, the employee would shell out an extra $1,240 in Social Security taxes (6.2 percent of $20,000) and the employer would have to do the same. That is actually an increase, percentage-wise, of over 18 percent ($1,240 divided by $6,621.60) in Social Security taxes. Moreover, since earners in the $100,000 to $125,000 range are properly classified as middle income or high-middle income Americans, Obama would be breaking yet another of his “promises” not to tax the middle class.
Both these proposals ignore the fact that federal income taxes and Social Security taxes are only part of the total tax burden placed on productive Americans. Most have to pay state and local income taxes besides, and in addition to local real estate taxes.