"It is the common fate of the indolent to see their rights become a prey to the active. The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt." -- JP Curran, 1790

Monday, October 27, 2008

Barack Obama's "Middle Class"??

In a previous post I wrote about the questions of BO's tax plan. He repeatedly defends that no one in the "Middle Class" will receive a tax increase. Let's examine these comments a little further.

First, the term "Middle Class" is a politically deceptive term. It is an undefined group in society that is typically invoked to represent the majority. But, how is the Middle the majority? Let's examine. If you are someone of lower income, the Middle Class is something you aspire to. It is the stable, hard-working, family oriented heart of America that we all want to self-identify with. For those of higher income, you aspire to make more money, but still want to associate yourself with the societial norms of the "Middle Class". Probably because that is what you grew up with. All of this is why you hear the term "Middle Class" used whenever a politician wants to potray the "good" people of this country. Why would you want "Middle Class" taxes to go down, you are part of the "Middle Class", right? Right? How do you know?

Second, the "Middle Class" has intentionally been left undefined. This year we see Barack play with the ceiling by defining it as $250K. This is of course and inclusion tactic to help more well-to-do people associate themselves with his plans. You will never hear him, or any other politician, define the floor of the "Middle Class". Not because they would set it low to include those lower income earners aspiring to be included, but because the focus would be on those outside of this definition. Why not me?

Let's run the numbers on this definition of $250K:

Only 2% of income earners make more than $250K. They are already paying a Federal tax rate of 33-35%. Add in State and local taxes and its probably between 65-75%, now. In order for BO to make his revenues to pay for all of his new spending, where is the money going to come from? Are you going to raise the top 2% rate? How would you respond to 90% of your income being taxed? Well, when CA raised state taxes on this top bracket, they moved their money out-of-state. Causing a 7% decline in state revenues in a single year. Think this won't happen at the Federal Level?? Guess what, it already is!! Our corporate tax rates are the 2nd highest in the world. Most of the corporations in the U.S. have off-shore tax shelters where they funnel as much income as possible to save. And people wonder why companies want to outsource. Not to India and China because of cheap labor, but Ireland, Poland, or Austria where they can manufacture a certain percentage of their product with skilled and educated labor and if that percentage is high enough, they can then attribute more of the income from that product to that countries' tax rates.

Back to income taxes, if BO wants to increase taxes in the future his revenue pool is limited to the 2%, IF he keeps his promises. The dangers of increasing taxes in a recession aside (ahem, Herbert Hoover), he will have no choice but to raise your taxes. How? By not calling it a tax increase but, by repealing the evil Bush Tax cuts. See the images below, the second from the Tax Foundation which will show you the impact of the Bush Tax Cuts. They broke the numbers at $200K, so on average if you were making less than $200k your taxes were decreased by 20.24% (Non-AMT) and 12.84% (AMT). Thank you President Bush!!

Still think your taxes won't go up??

By the ceiling definition, can we assume that the floor of the "Middle Class" is anyone above 2%? Meaning that 96% of income earners are in the "Middle Class"?? No wonder this is the favorite definitive term used by politicians, we all aren't just psychologically associating ourselves with the "Middle Class", we are the "Middle Class"! So who isn't in the "Middle Class"? The richest of the rich (policians themselves) and the poorest of the poor (the receivers of our wealth). What a game!!

Those are the facts!!

Signing off...JCB

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