February 8, 2015

The Connection Between High Taxes and Stagnant Wages

President Obama has wisely abandoned his lead-filled trial balloon of taxing college savings plans. Congressional offices were deluged over the last week with indignant calls from voters on this middle-class bait-and-switch scheme and finally Democrats caved. Good riddance. But the worst Obama ideas on taxes are directed at investors, entrepreneurs and risk-takers. These Obama investment tax hikes wouldn’t just harm wealthy investors, but American workers. Obama proposes raising capital gains taxes and dividend taxes to 28 percent. He also wants to impose a new capital gains tax on inherited wealth – on top of the existing death tax of 40 percent.

President Obama has wisely abandoned his lead-filled trial balloon of taxing college savings plans. Congressional offices were deluged over the last week with indignant calls from voters on this middle-class bait-and-switch scheme and finally Democrats caved. Good riddance.

But the worst Obama ideas on taxes are directed at investors, entrepreneurs and risk-takers. These Obama investment tax hikes wouldn’t just harm wealthy investors, but American workers.

Obama proposes raising capital gains taxes and dividend taxes to 28 percent. He also wants to impose a new capital gains tax on inherited wealth – on top of the existing death tax of 40 percent.

This isn’t Obama’s first assault on investment income. When Mr. Obama entered office the capital gains and dividend tax was 15 percent. Then he raised it to 20 percent and then he added a 3.8 percent investment surtax, bringing the rate to 23.8 percent. The tax rose by more than 50 percent.

If the president has his way with his new proposals, the tax on investment income will be nearly twice as high when he leaves office as when he entered office. Take that, Warren Buffett, and all you greedy Wall Street hedge fund managers.

These taxes are sold under the rubric of income redistribution – and are reminiscent the famous 2008 interchange between Barack Obama and ABC’s Charlie Gibson during a presidential debate that went like this:

Gibson: “In each instance, when the [capital gains tax] 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.”

So it is “fair” to raise a tax even if it loses money.

The people who have gotten whacked by this tax are wage earners. Here’s why: When you raise the tax on investment, you get less investment. When businesses invest less, fewer workers are hired, and existing workers have less machinery, technology, computers and equipment to work with. This means they can’t be as productive on the job and their wages stagnate.

Incomes rose in the 1980s and 1990s when investment taxes fell under Presidents Reagan and Clinton. Wages have stagnated under Obama as taxes have risen on capital.

The nearly flat growth in middle incomes is, in part, a result of the higher taxes on the rich.

A landmark study on this topic by economist Kevin Hassett of the American Enterprise Institute looked at business tax rates and wages around the world. He found that business taxes were inversely related to average wages. This is, in part, because capital flees from places where tax rates are rising.

Even worse is the increase in taxes Obama plans on estates. The Obama plan would eliminate what is called “step-up basis at death” on capital gains taxation. Under current law, at the time of a parent’s or grandparent’s death, the increase in the valuation of an asset from when it was originally purchased is not taxed. This is to offset the effects of the estate tax. Obama’s plan would tax estates and impose the regular capital gains tax on inherited assets – a business, property or stocks. And he would raise the capital gains tax to 28 percent.

This could bring the effective death tax rate in the United States to about 57 percent. That’s nearly the highest in the world.

Under the Obama plan, only the first $100,000 of an asset’s increased valuation would be tax-free for an individual ($200,000 for a couple). So instead of a $5 million estate tax exemption, many middle-class families would get hit with taxes on inherited wealth.

The evidence is clear that the effect of raising death taxes is to reduce savings and cause the dissolution of family-owned businesses. Even Obama’s former chief economic adviser, Larry Summers, has written on the negative effects of death taxes on national savings.

A 2012 Joint Economic Committee study found that “the estate tax has reduced the amount of capital stock in the U.S. economy by roughly $1.1 trillion since its introduction as a permanent tax in 1916.” It also concluded that the tax “is an overwhelming cause of the dissolution of family businesses. The estate tax is a significant hindrance to entrepreneurial activity because many family businesses lack sufficient liquid assets to pay estate tax liabilities.”

The point here is fairly simple: When businesses are healthy, productive and expanding, wages rise. As my old boss, Dick Armey, former House majority leader, always put it: “Liberals love jobs, but they hate employees.” Alas, you can’t have one without the other.

About two-thirds of the evil rich that Obama is hell-bent on soaking with higher taxes own, operate or invest in small businesses. The sad irony of his presidency, is that his agenda of greed and envy is so all-consuming and even maniacal that he has only managed to take down the middle class.

The lesson for Republicans is that tax reform that is pro-business and pro-investment is also pro-worker and pro-wages.


Republished from The Daily Signal.

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!


The Patriot Post and Patriot Foundation Trust, in keeping with our Military Mission of Service to our uniformed service members and veterans, are proud to support and promote the National Medal of Honor Heritage Center, the Congressional Medal of Honor Society, both the Honoring the Sacrifice and Warrior Freedom Service Dogs aiding wounded veterans, the National Veterans Entrepreneurship Program, the Folds of Honor outreach, and Officer Christian Fellowship, the Air University Foundation, and Naval War College Foundation, and the Naval Aviation Museum Foundation. "Greater love has no one than this, to lay down one's life for his friends." (John 15:13)

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

Please join us in prayer for our nation — that righteous leaders would rise and prevail and we would be united as Americans. Pray also for the protection of our Military Patriots, Veterans, First Responders, and their families. Please lift up your Patriot team and our mission to support and defend our Republic's Founding Principle of Liberty, that the fires of freedom would be ignited in the hearts and minds of our countrymen.

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2024 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.