Obama's FY2012 Budget: Taxes, Taxes and More Taxes

President Obama released his budget this morning. Rather than focusing on Washington’s over-spending problem, the budget calls for higher taxes on families and small businesses to pay for even more government spending. Under the Obama budget, tax revenues will grow from 14.4% of GDP in 2011 to 20% of GDP in 2021. By comparison, the historical average is only 18% of GDP.

Raising the top marginal income tax rate (at which a majority of small business profits face taxation) from 35% to 39.6%. This is a $709 billion/10 year tax hike Raising the capital gains and dividends rate from 15% to 20% Raising the death tax rate from 35% to 45% and lowering the death tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike Capping the value of itemized deductions at the 28% bracket rate. This will effectively cut tax deductions for mortgage interest, charitable contributions, property taxes, state and local income or sales taxes, out-of-pocket medical expenses, and unreimbursed employee business expenses. A new means-tested phaseout of itemized deductions limits them even more. This is a $321 billion/ten year tax hike New bank taxes totaling $33 billion over ten years New international corporate tax hikes totaling $129 billion over ten years New life insurance company taxes totaling $14 billion over ten years Massive new taxes on energy, including LIFO repeal, Superfund, domestic energy manufacturing, and many others totaling $120 billion over ten years Increasing unemployment payroll taxes by $15 billion over ten years Taxing management capital gains in an investment partnership (“carried interest”) as ordinary income. This is a tax hike of $15 billion over ten years A giveaway to the trial lawyers—not letting companies deduct the cost of punitive damages from a lawsuit settlement. This is a tax hike of $300 million over ten years Increasing tax penalties, information reporting, and IRS information sharing. This is a ten-year tax hike of $20 billion. Add it all together, and this budget is a ten-year, $1.5 trillion tax hike over present law. That’s $1.5 trillion taken out of the economy and spent on government instead of being used to create jobs.

The “tax relief” in the budget is mostly just an extension of present law, and also some refundable credit outlay spending in the tax code. There is virtually no new tax relief relative to present law in the President’s budget.

The following statement by Sir Winston Churchill, upon leaving office as Prime Minister in 1945, was prophetic for Great Britain, and as it turns out, the United States and the world:

"I do not believe in the power of the State to plan and enforce. No matter how numerous are the committees they set up or the ever-growing hordes of officials they employ or the severity of the punishments they inflict or threaten, they can't approach the high level of internal economic production achieved under free enterprise. Personal initiative, competitive selection, and profit motive corrected by failure and the infinite processes of good housekeeping and personal ingenuity, these constitute the life of a free society. It is this vital creative impulse that I deeply fear the doctrines and policies of the socialist government has destroyed. Nothing that they can plan and order and rush around enforcing will take its place. They have broken the main spring and until we get a new one, the watch wil not go. Set the people free. Get out of the way and let them make the best of themselves. I am sure that this policy of equalizing misery and organizing society--instead of allowing diligence, self-interest and ingenuity to produce abundance--has only to be prolonged to kill this British Island stone dead."

In the early days of America's experiment in liberty, its Founders warned of oppressive taxation by those elected to represent the people. Under their "People's" Constitution, the people were left free, and the government was limited.

While Europe struggled with oppressive government intervention, the genius Founders of America recognized enduring truths about human nature, the human tendency to abuse power, and the possibilities of liberty for individuals. Richard Frothingham's 1872 "History of the Rise of the Republic of the United States," Page 14, contained the following footnote item on the condition of citizens of France:

"Footnote 1. M. de Champagny (Dublin Review, April, 1868) says of France, 'We were and are unable to go from Paris to Neuilly; or dine more than twenty together; or have in our portmanteau three copies of the same tract; or lend a book to a friend: or put a patch of mortar on our own house, if it stands in the street; or kill a partridge; or plant a tree near the road-side; or take coal out of our own land: or teach three or four children to read, . .. without permission from the civil government.'

Clearly the government of France at that 1868 date laid an oppressive regulatory and tax burden on citizens, robbing them of their Creator-endowed liberty and enjoyment thereof. Frothingham observed that such coercive power constituted "a noble form robbed of its lifegiving spirit."

Thomas Jefferson warned Americans:

"To preserve [the] independence [of the people,] we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses, and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes, have no time to think, no means of calling the mismanagers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:39

Note Jefferson's very last thought here. He declares that when government taxing and debt have reached certain levels, in order for individuals to survive, then their chosen "employment" becomes "hiring ourselves to rivet their (the government's) chains on the necks of our fellow-sufferers." Might that account for why it is government employment levels which have risen at such great rates in the past 2 years?

Inasmuch as government creates no wealth and has no money, the pay for every job in government must first come out of the pockets of hardworking citizens in the private sector. Ahhh, guess that's what you call "redistributing" wealth! In Jefferson's words, it's called "rivet(ing) chains on the necks of our fellow-sufferers."

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