“It’s not class warfare, it’s simple math!”

That’s how President Obama defended the tax-the-rich foundation of his so-called American Jobs Act. The President’s rhetoric was, of course, overreaching, as it so often is when he is in campaign mode, and none other than the Associated Press took him to task for his overzealous, inaccurate generalization that the rich are not paying their "fair share."



Here’s the President setting up a straw man and then knocking him down with the practiced skill of a populist debater. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million... Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said. "That's pretty straightforward. It's hard to argue against that."

Well, middle-income households shouldn’t be paying a higher percentage of their income in taxes than high-income households, and, of course, they aren’t. As the AP pointed out, the rich, are (Mr. Buffett, apparently, notwithstanding), in fact, paying the highest marginal tax rates, as they should. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government according to AP's Stephen Ohlemacher. The ten percent of households with the highest incomes pay more than half of all federal taxes. They contribute over 70 percent of federal income tax revenue, says the Congressional Budget Office.

While there may be individual millionaires who pay taxes at rates lower than middle-income workers (IRS data reveals that in 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax), those free riders represent less than 1 percent of the nearly 237,000 returns with incomes above $1 million. This year, it is estimated by the Tax Policy Center, a Washington think tank, that households making more than $1 million will pay, on average, nearly 30% of their income in federal taxes, including income taxes, payroll taxes and other taxes. Households making between $50,000 and $75,000 will pay an average of 15 percent of their income in federal taxes.

To make matters worse, while the President rails against millionaires and billionaires, the group of individual taxpayers he really is targeting with this ruse is, as we all know, everyone making over $200,000, who he invariably lumps into the millionaire and billionaire category.

The President, of course, knows a good campaign catch phrase when he sees one, even if he badly botched this particular exercise in hyperbole. We thought his use of this particular canard was rather intriguing, given the opening he has provided the opposition to really focus on the “simple math” realities of where the country is and where this administration has taken us. Let’s take a look.

When President Obama assumed office he quickly surrounded himself with Keynesian economic advisers, and vigorously, pursued a spending spree (they called it a stimulus program)which quickly soared to more than a trillion dollars of extra deficit spending. This was designed to rein in unemployment before it reached 8.0%, which, at the time, was at 7.8%. The result? Nearly three years later, unemployment is at 9.1%. What we have learned is that the President’s program to reduce unemployment simply failed. It’s... simple math.

Then there is the matter of the nation’s soaring debt, though, to be fair, it was soaring before President Obama took office. In fact, it had, over many administrations, climbed to $10.6 trillion, which it reached during Bush’s eight years in office, but it has soared an additional $4.0 trillion to $14.6 trillion in the 34 months since Obama assumed office. And that only includes what the keepers of the national fisc call “public debt.” The difference between “public debt” (that held by holders of US Treasury notes and bonds) and the balance of the government’s debt is that the government can cancel much of what it owes (it’s non-public debt) simply by writing a new law; such as one that could abrogate all or part of what the government has previously committed to pay to, say, its Social Security or Medicare beneficiaries. This “non-public” debt (but debt nonetheless) is estimated to be about $100 trillion, which assures high taxes and high debt for generations to come.

Winston Churchill once equated a nation trying to tax and borrow its way into prosperity with a man standing in a bucket and trying to lift the bucket by its handle, which probably explains why President Obama, immediately upon assuming office, deep sixed the bust of Churchill that had adorned the Oval Office for decades. The Obama debt doesn’t attest to wise economic policy but rather to failed economic manipulation. In terms of economic accomplishment, we have nothing to show for this hyper profligacy. Government spending is way up, yet economic indicators are way down. It’s... simple math.

Then there’s what might be called the Obama Shell Game. A cornerstone of the President’s American Jobs Act is a continuation of the payroll tax holiday that promises to pump about $240 billion into the economy. That would be a whopping 36% of the entire payroll tax collected. But if the current payroll tax is required to fund current social security payments, won’t the social security trust fund be short by that much? Yes, we know the “trust fund” is a chimera, but stay with us. Yes, the Social Security trust fund account would be short by $240 billion (plus its $50 billion projected deficit without the payroll tax holiday), except for, figuratively speaking, the sleight of hand that deftly slides that same amount ($240 billion) back into the so-called trust fund account. Well, the reader might ask, where would the replacement $240 million come from? Ah yes, the millionaires and billionaires who the President falsely excoriates for paying less taxes than “the teachers, nurses and construction workers”... or with yet more debt.

The eye-crossing legislative legerdemain that prescribes this shell game is worth reading, if only for comic relief. Buried within the 155-page American Jobs Act we find what we call the "Shell Game Provision.” It reads:

TRANSFERS OF FUNDS. –(1) Transfers to federal old age and survivors’ insurance trust fund. —There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsections (a) and (b) to employers other than those described in (e)(2). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers, which would have occurred to such Trust Fund had such amendments not been enacted.

You can’t make this sort of thing up. Churchill might well have called this the "Lifting The Bucket From Within” provision.

The American economy remains in bad shape. Economic growth is pitifully low and substantially less than the Administration projected. Our debt has soared. Interest on that debt dominates the entire federal budget. Under President Obama we have had three successive years with $1.0 trillion budget deficits (unprecedented in American history) while unemployment has moved above nine percent. The Obama strategy, by any rational measure, has failed. It’s... simple math.

By Hal Gershowitz & Stephen Porter