Obama and the GOP: United Against the Working Poor

A Must-Read Article of the Day...by David Cay Johnston     

Who says bipartisanship is dead?


On Capitol Hill, the Democrats and Republicans may no longer play cards and drink together, but that does not seem to stop them from working together to shift tax burdens down the income ladder even when it violates their promises on the campaign trail.


Grover Norquist calls bipartisanship the political equivalent of date rape. But there is one group that President Obama, many congressional Democrats, and all congressional Republicans ganged up on in December -- the working poor.


The tax compromise passed in December has been hailed everywhere as a payroll tax cut combined with an extension of the Bush tax cuts, despite the fact that it raised taxes on a third of Americans.


The killing of Obama's Making Work Pay tax credit, which the White House called the biggest middle-income tax cut ever, and the replacement of it with the Republicans' payroll tax cut raised taxes on single workers whose wages come to $20,000 or less and married couples with less than $40,000 in wages.
That's 51 million taxpayers, the Tax Policy Center estimated.


Among the poorest fifth of tax units, whose annual cash income is less than $17,878, two-thirds got hit with a tax increase. On average, their taxes went up $134, which is 1.3 percent of this group's total cash income.
Consider a single worker who makes $6,000. That was the average wage of the bottom third of workers in 2009, the Medicare tax database shows. Killing the Making Work Pay credit in favor of the payroll tax cut amounted to a tax increase of $252, or 4 percent of total income.


Looked at another way, some workers will labor for 23 days this year and next just to pay increased taxes.


The pattern of the Republican-Obama tax plan is a clear stepladder in which the more you make, the more you benefit, and the less you make, the more you pay. This is a form of socialism: upward redistribution to enrich those at the top.


While two-thirds of the poorest Americans -- the ones getting by on less than $1,500 a month -- face a tax increase, the share of people hit with tax increases falls off quickly as you move up the income stepladder.


In the next lowest quintile, taxpayers with cash incomes of under $35,000, 40 percent saw their taxes rise, while in the middle quintile (under $64,000), one in five got a tax increase. In the fourth quartile (under $104,600), one in eight got a tax hike, and in the top quartile, one in 20 did.


At the top, just 1.8 percent of the top 1 percent (more than $564,600) were hit with a tax increase. Just 1.3 percent among the top tenth of 1 percent (more than $2 million) got a tax hike. These best-off one in 1,000 Americans got a tax cut worth on average $45,000 each, all financed with borrowed money.


In raising taxes on the working poor (and the just plain poor), our supposedly socialist president proved himself at one with Ronald Reagan, the subject of all sorts of hagiography this month on what would have been his 100th birthday. Hardly any of the effusive praise points out that while Reagan polished his image as a tax cutter, he was in fact a tax raiser par excellence who presided over a massive expansion of government spending that primarily benefited the affluent and rich.


Reagan raised taxes in seven of the eight years he was governor of California, including when he abandoned his "taxes should hurt" rhetoric to impose withholding so he could expand state spending on the Highway Patrol and other policing. In Washington, Reagan presided over 11 increased levies.

The perpetually obsequious Washington press corps let his administration call these tax increases "revenue enhancers." The late Murray N. Rothbard, a hero to libertarians and self-proclaimed dean of the Austrian school of economics, called this Reaganism "a nice touch of creative Orwellian semantics."

This same pattern of focusing on tax cuts and ignoring tax increases continues. Ask anyone you know how much Obama cut their taxes in 2009 and 2010. Go ahead, try it. Expect perplexed looks and responses along the lines of "You mean tax increases, don't you?"


Last fall Michael Cooper of The New York Times asked North Carolinians at the Pig Pickin' and Politickin' rally about the Obama tax cuts. "Say what?" was the basic response, even though 97 percent of Americans got a tax break that averaged $1,200 over two years.


One survey found that fewer than 10 percent of Americans were aware of the Making Work Pay tax credit.


That so few Americans understood that Obama provided them with a tax cut is because of two forces.


One is the hostile coverage he gets, not just from Fox News and the increasingly politicized news pages of Rupert Murdoch's Wall Street Journal, but from the press generally.


The other is the major reason that mainstream journalists treat Obama more harshly than his predecessor. The operation Obama put in place to respond to questions from reporters is run entirely by people with no press experience, many of whom act like they work for the candidate, not the office of the president.
The fact that the Making Work Pay tax credit came mostly as a reduction in withholding that put an extra $8 or $16 in weekly take-home pay also hurt. Many people saw their take-home pay increase, but had no idea why.


This pattern of benefits that grows along with income is what got us into this debt mess.


It began with Reagan, who turned perennial, insignificant deficits since President Johnson's last budget into buckets of red ink with little to show for it in terms of widespread economic benefit.


From 1980 through 1988, the average income of the bottom 90 percent rose just $369, or 1.2 percent, in 2008 dollars, ending three decades during which the average incomes of the bottom 90 percent grew faster than those at the top.


Under Reagan, those on the 95th to 99th rungs on the income ladder saw their average income rise by $23,681, or 16.9 percent. That's 14 times the rate of increase for the bottom 90 percent.


The bottom half of the top 1 percent enjoyed a 32 percent increase, those from 99.5 percent to 99.9 percent a 57.7 percent increase, and the top tenth of 1 percent a 105.6 percent gain.


So under Reagan, the wealthiest Americans saw their incomes grow at more than 100 times the rate of the vast majority. Of course, that was what was intended by cutting the top tax rate from 70 percent to 28 percent and slashing capital gains taxes -- making it less costly to take money out of businesses to enhance the lifestyles of the owners, spawning a huge growth in the prices of unproductive assets, especially multiple mansions and objets d'art.


This pattern continued under President George W. Bush.


More than half the 10-year cost of the Bush tax cuts benefited the top 5 percent, and 72 percent of that went to the top 1 percent, while the middle fifth of taxpayers got just 7.4 percent of the tax relief, Citizens for Tax Justice calculated.


The cost of the Bush tax cuts cost for the first 10 years, including interest, was almost $2.5 trillion. That's two and a half times the cost of the healthcare law sponsored by Obama. Now ask yourself which spending plan -- the Bush tax cuts and their extension or a step toward universal and reliable health insurance -- most people think is responsible for our huge budget deficits and national debt?


In 2009 almost 62 million workers, 41 percent of everyone who had a job that year, made less than $20,000.


And 100.6 million workers, exactly two out of three people with jobs, made less than $40,000, the Medicare tax database shows.


The Obama-GOP tax increase applied to everyone with a job that paid under $20,000 ($40,000 for married heterosexual couples).


So while at least 90 percent of Americans are uninformed about this tax increase, you can now contribute to the factual basis of our national tax debate by pointing out to others that Obama and the GOP, along with a lot of congressional Democrats, enacted a bipartisan tax increase on the working poor in violation of their campaign pledges.


This article was written by David Cay Johnston, and posted on his blog, http://www.tax.com/  on February 14, 2011.