After three years of the Obama presidency, the economy is growing, but only slowly (1.7 percent in 2011). And Obama is threatened with the prospect of fewer Americans holding jobs on Election Day in November than were employed on the day he was inaugurated in 2009. At the moment, he’s roughly one million jobs short. But if you suspect Obama is now inclined to seize the opportunity, cut taxes, and create faster growth and more jobs, you don’t know the president. He wants to raise taxes.
Obama is eager to tax anything the IRS can get its hands on, so long as the revenue is taken from the well-to-do. Just for starters, he’d let the Bush tax cuts expire, raising the top income tax rate for individuals earning more than $200,000 to 39.6 percent from 35 percent. And when the new Medicare tax on investment income and the stripping of deductions are added, the top rate would exceed 44 percent, its highest in a quarter-century.
He’s eager for the income of millionaires to be taxed at no less than 30 percent. His so-called corporate tax reduction package is actually designed to raise tax revenues by $250 billion. He would triple the tax on dividends to 44.8 percent from 15 percent and boost the long-term capital gains rate, with the Medicare tax included, to 24 percent from 15 percent.
Tax policy is dense stuff, but stick with me. Obama wants to tax the profits of hedge-fund operators at the individual rate, not the lower capital gains rate. He’s proposing to tax the overseas profits of American companies by an undisclosed amount, though none of our global competitors applies such a tax. And there are new taxes accompanying Obamacare, the Medicare tax being the first of them.
His principle of tax reform is unique. Tax reform is supposed to erase loopholes and special interest breaks, broaden the base, and slash the rates. This is what bipartisan reform did in 1986, when the top income tax rate was cut to 28 percent from 50 percent.
Obama embraces two-thirds of this reform formula. He’d eliminate the breaks and widen the base but then raise the rates. While paying lip service to simplification, Obama would tax different industries at different rates, some higher, some lower, imposing a kind of crony taxation.
This is crazy. It’s what President Franklin Roosevelt did. It helped keep unemployment as high as 19 percent in the late 1930s and prolonged the Depression. He boosted the top income tax rate to 94 percent and added withholding. “FDR enacted the undistributed profits tax [on corporations] and also hiked inheritance taxes, the gift tax, and many excise taxes,” says Roosevelt historian Burt Folsom.
Yet FDR seems to be Obama’s model on tax policy, despite the negative results. He doesn’t favor President Reagan’s policy of incentives for private investment to stir economic growth and job creation, despite the positive results. Like FDR, Obama would rather punish the investor class than incentivize it.
Are Obama’s tax policies perverse, stubborn, or simply driven by ideology? Probably all three. He told ABC’s Charlie Gibson in a 2008 campaign debate that “fairness” might cause him to increase the capital gains rate even if a lower rate would produce more tax revenue.
Obama hasn’t changed his view of taxation since then. The biggest factors in stimulating growth and jobs are government spending, consumption, and private investment. Under Obama, the first two are slightly above pre-recession levels. Private investment lags well below. Yet it’s private investment, far more than the other two factors, that drives job growth. Under Obama, business investment is the missing ingredient.
His budget for 2013 reflects his zeal for increasing taxes. “You’ve got to work hard to develop that many job-killing things in one package,” says Republican representative Kevin Brady of Texas, the vice chairman of the Joint Economic Committee.
Brady thinks Obama gets bad advice. “He’s a bit gullible on jobs,” the congressman says. “He has no economic experience and no gut instinct on job creation.” He doesn’t understand “a single business or the entire business climate in the United States.”
Knowledgeable or not about economics, Obama is highly critical of supply-side economics, which encourages private investment. In his speech in Osawatomie, Kansas, in December, he referred to GOP policy as “trickle-down” economics, a cliché that the demagogues of his party have trotted out against pro-growth policies for more than half a century.
“It’s a simple theory, . . . one that speaks to our rugged individualism and our healthy skepticism of too much government,” he said. “It fits well on a bumper sticker. But here’s the problem: It doesn’t work. It’s never worked.” Obama failed to explain why President Reagan, while pursuing exactly that theory, sparked a considerably stronger recovery from a deep recession than he has.
Nor does he understand why businesses are leery of hiring new workers here. On this point, his meeting with the late Apple chief Steve Jobs, disclosed in Walter Isaacson’s biography of Jobs, was revealing. Jobs explained to Obama how much easier it is to build a factory in China. Jobs said the president’s policies, especially regulatory excess and unnecessary costs, were to blame, and he told Obama, “you’re headed for a one-term presidency.”
Obama has ignored the Jobs lesson. There’s still another economic law he’s happy to violate: The more you tax something, the less you’ll get of it. The oil and gas industry is booming, so much so that the president bragged about it last week. But back away from his proposal to tax oil and gas to the tune of $40 billion over 10 years? Not a chance.
Fred Barnes is executive editor of The Weekly Standard.