It’s remarkable that this paper by Obama Sr. has gotten so little media coverage. One would expect it to be on the front page of every newspaper and a lead item on the evening news, especially during public debates in America over taxes and massive government intervention in the health care and financial sectors. Notice the two-part economic strategy proposed by Obama Sr.: forced state control over private enterprise, and confiscatory tax rates with no upper limit. We will find it instructive to compare this to President Obama’s economic policies. For example, President Obama frequently talks about people being forced to pay their “fair share” in taxes, but he never specifies what that share is. Here, we have a document that explicitly states his father’s thoughts on the subject and may provide some guidance to the son’s own thinking. Yet for many in the media, these father-son comparisons are completely taboo. For them, it seems, the ghost of Barack Obama Sr. must be quietly ignored, so it cannot be seen haunting the corridors of 1600 Pennsylvania Avenue.
Clearly the shocker of the paper is the suggestion of a 100 percent tax rate. We may think: How can a man in his right mind propose something so ridiculous? We can imagine the income tax form, a mere postcard with just two line items: a) List what you earn, and b) Send it in. Yes, by conventional economic considerations Obama Sr. is a crank. The law of incentives holds that it makes no sense to impose taxes that eliminate the motivation to work. But when we insert the anti-colonial premise, we can see why confiscatory tax rates—even 100 percent rates—do make a kind of sense. Recall that the central anti-colonial idea is theft. In this view, countries get rich through invasion and plunder, and people and corporations acquire wealth through their greedy exploitation of others. Now imagine if you came to my house and stole all my furniture. In terms of those goods, what’s the appropriate tax rate for you? The answer is: 100 percent, because it’s not your furniture. Thus when you assume that income is not the result of effort or work; when you assume that it is not “earned”; when you consider income and wealth to be the product of greed, exploitation, and theft; then you have no qualms about taking as much of that income and wealth as you can get away with. After all, the rich people and the corporations are a bunch of thieves; the money doesn’t really belong to them! The government shouldn’t seek to motivate thieves, but rather to punish them and seize their ill-gotten wealth.
The centerpiece of Obama’s re-election campaign is an attack on the rich, the millionaires and billionaires, the top 1 percent of income-earners in this country. From Obama’s point of view, these are greedy, selfish people who are not paying their appropriate share. Obama champions the Buffett Rule, which calls for capital gains and dividends to be taxed at a minimum rate of 30 percent. The rule is named after investment guru Warren Buffett, who declared that at 15 percent he pays a lower rate of taxation than his secretary. Buffett’s observation seems to buttress Obama’s point that the rich get unfair tax breaks. In fact, however, capital gains and dividends are taxed twice. They are taxed as corporate profits—and America has one of the highest corporate tax rates in the world—and then they are taxed again as payouts to individuals. The real capital gains tax rate is closer to 45 percent. Moreover, when rich people have money they can spend it or invest it; the purpose of a relatively low capital gains tax rate is to encourage them to invest it and help foster innovation and job growth. Finally, as an editorial in the
New York Times
noted, the Buffett Rule would generate an estimated $50 billion over ten years, a pittance compared to our annual trillion-dollar deficit. Even if Obama got his way, the
Times
conceded, his solution would “not make an appreciable dent in the deficit.” In fact, I’d like to add, it would not pay for a single one of Obama’s extravagant spending programs.
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Rich people already pay a lot of taxes; indeed, they shoulder most of the nation’s income tax burden. Government data show that the top 1 percent of U.S. taxpayers currently pay around 40 percent of all federal taxes. The top 10 percent pay 70 percent of all taxes. About half of Americans pay no federal income tax, and nearly 25 percent pay no taxes whatsoever. Now these numbers reflect what the government takes in from various groups. But what percentage of their income do those groups actually pay? According to the Tax Foundation, the average federal income tax for the top 1 percent is 25 percent. The average for the middle-fifth of income earners is 14 percent. The average for the bottom half is 3 percent. Anomalies like Warren Buffett aside, it is simply false to say that the rich are paying less than the rest in taxes; they are actually paying a lot more.
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Never once has Obama made the case for why the rich ought to pay a higher percentage in taxes than they currently do. And there is a solid economic argument for avoiding confiscatory taxes on this group. During the Reagan years, economist Arthur Laffer famously devised his “Laffer Curve.” The curve posits that there are two levels of taxation that produce an identical level of government revenue. Imagine two scenarios: a tax rate of 0 percent and a tax rate of 100 percent. In both cases, the amount of revenue the government can expect in tax receipts is zero. In the first case the answer is obvious: the government doesn’t tax people, and so it doesn’t take in any money. But Laffer’s point is that a 100 percent tax rate produces the same result; if the state takes away everything that a group of citizens produces, then they have no incentive to work and so will produce nothing. Once this principle is grasped, the Laffer Curve becomes self-evident. Laffer’s core contention is that once the marginal tax rate—the rate on an additional dollar of income—reaches a certain point, it has such a deleterious effect on incentives that entrepreneurs will stop producing and the government will take in less money. Now no one knows exactly what this tipping point is, but tax policy for three decades has been based on keeping rates away from this tipping point. In recent years, some liberal economists like Emmanuel Saez have insisted that we are not at the tipping point yet; from Saez’s point of view, higher tax rates on the rich would not have a measurable impact on their productivity.
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One might expect Obama to join this debate, but he hasn’t. The reason is evident from a 2008 interview that Obama did with Charlie Gibson of ABC News. The topic was raising the capital gains tax rate on the rich.
Gibson
: George Bush has taken it down to 15 percent. And in each instance, when the rate dropped, revenues from the tax increased—the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
Obama
: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
Gibson
: But history shows that when you drop the capital gains tax, the revenues go up.
Obama
: Well, that might happen, or it might not.
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It’s worth pausing to ponder what Obama is saying. Basically, he is saying that it doesn’t matter whether higher tax rates on the rich generate additional revenues for the government or not. This is not about government revenue. Rather, Obama’s own basic notion of fairness demands that the rich pay more. Perhaps—to take a cue from his father’s paper—if the highest income earners paid tax rates of “up to 100 percent,” Obama would finally be satisfied that they were contributing their fair share.
Since we’re back to Obama Sr.’s paper for the moment, it’s worth recalling the second theme of that paper. Not only did Obama Sr. recommend limitless tax rates, but he also called for the state to use its power to control and dominate the institutions of the private sector. For Obama Sr. the private sector is the neocolonial sector. This sector is made up of the big bad corporations: banks, insurance companies, pharmaceutical companies, oil companies, and so on. Obama Sr. proposed that the government seize control of these industries and turn them from private profit-making entities into regulated arms of the state. In effect, he called for turning them into state utilities serving socialist conceptions of the public good.
How does the vision of Obama Sr. match up with the actions of Obama Jr.? After four years of Obama’s presidency, we can see that there is a very good match. Obama used the banking crisis to establish the strong arm of government control over the banks. He backed the so-called Dodd-Frank legislation that basically empowers the government to take over any financial institution it considers to be imperiled; the government can then run that institution however it wants. The Dodd-Frank Bill is an 848-page encyclopedia containing 400 or so rules; moreover, nearly every page asks regulators to fill in the details by adding more rules. Already Dodd-Frank has dramatically raised the cost of doing business for the financial sector, and according to
Investor’s Business Daily
it may force 1,000 small banks to close down .
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Next Obama pushed through his health care reform—commonly dubbed Obamacare—without a single Republican vote. Obamacare takes the reach of government regulation far beyond what it has been previously. While upholding Obamacare under the government’s taxing power, the Supreme Court recognized this. Previously the government could tell you what you couldn’t buy; Obamacare is a case of the government telling you what you must buy. Imagine if the government, in the name of protecting your health, told you that you must buy exercise equipment or two pounds of broccoli every week at the supermarket. Most of us would consider that a ridiculous overreach, an infringement of personal liberty. Well, Obamacare is the same, because it forces people who don’t want to buy health insurance to buy health insurance. Moreover, Obamacare, like Dodd-Frank, institutionalizes a labyrinth of new rules, regulations, fines, costs, penalties, boards, and bureaucracies. The federal government can now specify who must have insurance, how much insurance companies can charge, what profit they can make, which medical ailments receive coverage, and what doctors are paid. Further, as
The Economist
noted, “the bill does almost nothing to control costs.”
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Obamacare, which takes effect in 2014, represents a government takeover of one-sixth of America’s economy.
In keeping with the recommendations of his father, Obama has not opted for nationalization of private industries; rather, he has pursued what may be called decolonization. The government doesn’t own the assets of the private sector, but it does essentially control them, at least when it decides it’s time to step in. Obama has also increased regulation of the auto industry, the coal industry, and the oil industry. In each case the pretext is different—we have to protect the homeowner, we have to save Detroit, we have to widen the availability of health insurance, we have to protect the environment—but the effect is always the same. To a degree that seemed almost inconceivable four years ago, large domains of private industry are now under government control. If you had read Obama Sr.’s paper four years ago, you might have seen it coming.
So what’s next? If Obama is re-elected, Americans can over the next four years expect to see a sharp increase in a whole host of taxes. The good news for Obama is that he doesn’t have to do anything to achieve this increase. It occurs automatically, with the expiration of the Bush tax cuts. So the top tax rate is scheduled to rise in 2013 from 35 percent to 39.6 percent. The top rate on long-term capital gains will rise from 15 to 24 percent, and on dividends it will jump from 15 to 44 percent. The death tax, which is currently 35 percent and kicks in at $5 million, will go up to an astonishing 55 percent, and the tax kicks in at just $1 million.
Obama’s re-election means that these increases are a done deal. But if we know anything about Obama, they are only a starting point. He will push for much higher rates, and if he has a Democratic Congress, he will probably prevail. Moreover, we can expect Obama to seek increased federal control over industries that are now not under the full control of the federal government. Education at the grade school level is already under government control—and largely for this reason, it is a mess. But higher education, although regulated, remains mostly private, and America has a higher education system that, for all its problems, remains the envy of the world. If the federal government largely takes over higher education, we can expect America’s colleges and universities to go the way of our public schools.
Doesn’t all this point to a poorer, less efficient America? Isn’t the American standard of living, which has been stagnant at best over the past four years, likely to decline over the next four? Yes, and I believe this is what Obama wants; it is part of his anti-colonial objective. The objective is not to stimulate American business or boost productivity, but to make the rich and the big bad corporations pay for their misdeeds. It is to punish these greedy, selfish exploiters for what they have done to the rest of us, and to the rest of the world. If Obama has to bring down the economy in order to bring down the fat cats he loathes so much, if he has to sap America’s economic vitality to end America’s reign as a global superpower, I believe he will do it.
CHAPTER NINE
DRILLING THERE BUT NOT HERE
We can’t drive our SUVs and eat as much as we want and keep our homes on 72 degrees at all times . . . and then just expect that other countries are going to say okay.... That’s not going to happen.
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