"Patriotic" Wealth Redistribution

Throughout the past several months I have repeatedly heard the claim that Senator Barack Obama will be giving a significant tax cut to lower and middle class families. This claim has been made by the mainstream media (for example Charles Gibson mentioned it in his interview of Sarah Palin) and by the surrogates from the Barack Obama campaign. It is even contained in Mr. Obama’s website where he states that he plans to “cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples.” Mr. Obama plans to pay for these tax cuts by increasing the individual tax rates for people in the top 5% income level, as well as increasing the taxes for American corporations. However, the rhetoric was turned up a notch today by vice-presidential hopeful Joe Biden when he stated “We want to take money and put it back in the pocket of middle-class people.” He later when on to say “It’s time to be patriotic, OK… time to jump in, time to be part of the deal, time to help get America out of the rut.” So paying our taxes is now considered “patriotic.”

In 2006 roughly 136 million federal income tax returns were filed. Of that total, approximately 43.4 million returns resulted in either zero or a negative tax liability. Additionally, around 15 million households or individuals did not need to file tax returns. In total, approximately 121 million Americans owed nothing to the Federal government. That is around 41% of the population. So is Joe Biden saying 121 million Americans are “unpatriotic?”

The greater question is, how does Barack Obama plan to give 95% of American families a tax cut, when over 40% of the people in America do not pay taxes? The answer is forced wealth redistribution. You may think this is just a mere play on words, and that as a society the wealthiest portion of the population should do their fair share and pay a greater proportion of the overall tax burden. But how much is enough? Right now the top 5% income level in America earns approximately 33% of the total income but pays 57% of the taxes. Should we return to the top rates of the late 1950’s and early 1960’s which were at 91%?

Additionally, where does this “patriotic” tax policy end? Currently, the top two Federal corporate tax rates are 33% and 35%. Senator Obama wants to raise these rates to 36% and 39.6% respectively. Senator Obama also wants to restore hidden marginal rate increases known as “PEP” and “Pease” (PEP is related to a phase out of personal exemptions while Pease is related to the amount of itemized deductions a business can claim). With these two rate increases combined, the actual corporate tax rates would go up to 40% and 41% respectively. Like most Americans, my first thoughts were “why should I care if Obama increases the taxes on corporations?”

In reality, however, corporations do not actually pay these increased corporate taxes, the American people do. This is because a corporation is merely an extension of the people who work for it, who own shares in it, or buy goods and services from it. For every $1 of increased tax that Obama levies on American corporations, $0.70 is passed on to consumers and employees in the form of increased prices for goods and services, fewer jobs and/or lower wages. The additional $0.30 is passed on to the company shareholders in the form of reduces stock prices and/or lower dividends. One study suggests that the poorest 20% of American households pay more in corporate income taxes than they do in individual income taxes ($271 versus $171 per year). The study also showed that in 2007, American households paid $3,190 on average in corporate income taxes per year. That’s more than the average household spent on restaurant food, gasoline or home electricity in that year.

Barack Obama’s economic policies show that he is either not knowledgeable about economic drivers in a capitalistic society, or he chooses to ignore these drivers in an effort to play on the ignorance and fears on enough Americans so that he can get elected. If the Obama – Biden ticket would like to redistribute wealth, then I would prefer it to be in the form of voluntary redistribution, which most of us Americans commonly refer to as charity. But in the past 10 years Joe Biden has made nearly $2.5 million and has given less than $3,700 to charity. Between 2000 and 2004, Barack Obama made over $1.2 million but donated less than $11,000 to charity. This shows that Barack Obama and Joe Biden are perfectly content with redistributing wealth, just as long as it’s not their own.