During his recent rallies to galvanize support for his “American Jobs Act,” President Obama stated that he wanted to ensure that millionaires paid the same percentage of taxes as secretaries. While this is a great soundbite, this statement is inflammatory and demonstrably false. “Millionaires” in this country, which according to President Obama’s definition now includes small business owners and job creators along with the likes of Warren Buffett and Bill Gates, pay a significantly higher portion of their salary to federal income tax, and pay a disproportionate amount of the entire tax burden.
When President Obama states that high income earners are paying less tax then the middle class, he cites the example of Warren Buffett, a multi-billionaire who only pays 17.4% of his taxable income. However, Mr. Buffett is an anomaly in the upper tax bracket, because most of his income is earned through capital gains, which is taxed at a relatively lower 15% rate (IRS, February 2011). According to figures compiled by the nonpartisan Congressional Budget Office (CBO), those making over $1 million per year pay an average tax rate of 23.3%, while those making between $30-50,000 dollars pay an average tax rate of 7.2%.
Most people in the upper tax brackets are not receiving stock options as compensation, and are therefore subject to the same progressive tax structure as “secretaries.”
Under the current tax system, millionaires don’t just pay a higher tax rate; they also are responsible for a much higher percentage of income taxes paid. Again, the most recent CBO statistics available demonstrate that the top 1% of wage earners contribute nearly 40% of all income taxes paid in this country. The bottom 50% of America’s wage earners contribute only 3% of all income taxes. Additionally, under the current tax structure created under the Bush tax cuts, lower income citizens received a new lower tax bracket as well as the Earned Income Tax Credit, which has enabled further reductions to their tax burden.
In order to reduce this perceived “inequality” between millionaires and secretaries, President Obama has proposed an increase in capital gains taxes to 28%. This is a mistake. While billionaires take advantage of this tax classification to cushion their compensation packages, the lower rate was designed to help the elderly make the most of their golden years (half of all taxpaying seniors have capital gains or dividend revenue) and to help middle class Americans make the most of their earnings. The low capital gains tax encourages people to invest their earnings in the enterprises of their fellow citizens, enabling business growth and expanding the wealth of ordinary Americans. Using the guilt ridden complaints of an already privileged few to discourage the attainment of a higher standard of living by hard working citizens is a disingenuous political strategy by the administration at the detriment of the American economy.
President Obama appears to be preparing a stimulus program that will be used to secure his base during his next Presidential campaign. However, in his rush for re-election, he ignores the fact that American businesses will respond only with a refined financial and regulatory structure that provides efficiency, clarity, and stability, and a workforce trained to fill jobs that are valued in this evolving economy. Instead of creating friction between “millionaires” and “secretaries,” it is essential that the entire country is committed to improving the condition of every citizen.
We must be committed to taking every possible step to improve conditions for private sector job creation and to get our economy back on track so that America’s workers and business owners can do what they do best: create, innovate and lead. We must commit to pro growth policies that eliminate red tape and put Americans back to work.