Increasing Taxes on the Rich Does Not Create Jobs for the Poor

Right From the Start

President Barack Obama, speaking to a media luncheon on Tuesday, reiterated his campaign theme of class warfare by characterizing the upcoming election as a choice between a society in which the rich get richer and the remainder of society suffers or his policies of fundamental fairness. It’s a great line but what does it mean and what does Mr. Obama propose to do about?

We are three plus years into Mr. Obama’s administration and while he touts his plan for economic recovery, thus far the only people who have benefited from the nation’s anemic recovery are the Wall Street “fat cats” – the very people that Mr. Obama criticizes, the very people who gave millions to his elections and are giving millions more to his re-election, the very people who make millions by packaging and repackaging financial instruments without ever once creating a productive job.

When I first began practicing law in Helena, Montana, Frank Murray was the Secretary of State. For as long as I can remember there were allegations of corruption in his office to which he routinely responded: “I don’t care what they say about me as long as they spell my name right.” (Knowing Mr. Murray it is doubtful that he coined that phrase.) The Wall Street bankers are generally in the same position. They really don’t care what the politicians say about them, what rules and regulations are adopted to “control” them, or what impacts their financial manipulations might have on the broader economy. Say and do what you might just as long as the money flows into their financial houses.

In large part, these are the friends of Mr. Obama and while they have profited wildly in the first three years of Mr. Obama’s administration, the middle class and the working poor continue to suffer through staggering unemployment and escalating food and gas prices. (While the eggheads who opine endlessly on monetary policy may exclude food and gas prices from the core consumer price index, those who eat and commute cannot.)

And yet, despite all of this, Mr. Obama’s rhetoric has been singularly focused on punishing the rich through higher taxes – not creating opportunity for the middle class and the working poor. Oh yes, Mr. Obama seeks to embrace the middle class and the working poor but his actions are either non-existent or counterproductive. Here are a couple of examples:

Mr. Obama justified his trillion dollar stimulus plan by saying that it would stimulate job creation and keep unemployment under eight percent. In matter of fact, the vast majority of the money was spent on raises to public employees and funding of their gold platted benefit packages. Additional monies were spent on green projects whose only successes to date seem to have been the lining of the pockets of wealthy investors who, coincidentally, were significant financial supporters of Mr. Obama. The middle class and the working poor were left behind as unemployment rose to above ten percent and real unemployment hovered in the twenty-percent range.

Mr. Obama’s policies regarding energy production continue to be counterproductive and have contributed significantly to gasoline prices now topping $4.00 per gallon. And yet his solution, his only solution, to the high prices of gasoline has been to propose higher taxes on the oil producers – a move that will only increase the price of gasoline. (Perhaps the “smartest man in the room” still hasn’t tumbled to the fact that corporations don’t pay taxes – they are always passed through to the consumers in the form of higher prices.)

And yet Mr. Obama continues to be a one-trick pony demanding more taxes on the rich while aiding the rich to get richer. Still not a word about any program, initiative or even recognition of how jobs are created for the middle class and the working poor. Mr. Obama and his acolytes continue to beat the drums for green energy and green jobs but the fact of the matter, despite billions in tax dollar subsidies, green energy has produced damn little energy and even fewer jobs. Increasing the numbers of, pay for and benefits for public employees does not stimulate job growth – rather it simply accelerates a burden for taxpayers into the future by making the public employee wage base broader and more expensive.

But it is Mr. Obama’s intention to reinforce the belief that the rich in America are represented by the Republican Party while only the Democrats serve the poor and the middle class. Yes, there are rich Republicans but there are at least as many rich Democrats. Most of the very wealthy are agnostic about political philosophies and view participation simply as a means of ensuring access and influence – in both parties. These very rich no more care about the platforms of the two political parties than they do about the destructive effects of creating and marketing derivatives which they then bet against by shorting them against the various customers to whom they were sold.

If Mr. Obama were serious about job creation he would do the following:

  1. Eliminate corporate welfare. That means the elimination of special tax considerations for oil and gas producers, hedge fund managers and others. It also means elimination of direct subsidies and tax subsidies for wind and solar generators, biofuels, ethanol, and other nascent but uneconomic energy suppliers. Add crop subsidies and other agricultural support mechanisms.
  2. Eliminate tax benefits for foreign investments and allow repatriation of profits earned on foreign investments by treating such profits as capital gains. (This might be referred to as eliminating the Obama/Immelt tax break.)
  3. Confine mortgage interest deductions to primary homes.
  4. Repeal Obamacare. Everyday we continue to learn that Mr. Obama, former Speaker Pelosi and Sen. Reid lied about every financial aspect of the plan. The only “savings” in healthcare costs comes from reducing Medicare benefits by $500 Billion and that reduction, like all other Medicare reductions, will evaporate when Congress is actually called upon to enact it.
  5. Eliminate all welfare payments, in its myriad of forms and programs, to those who are not legally in the United States. That includes Medicaid payments and access to emergency room care under the Emergency Medical Treatment and Active Labor (EMTALA)
  6. Restrict unemployment benefits to those actually seeking work. Recipients should be able to pursue jobs equivalent to their previous employment during the first twenty-six weeks but thereafter should be required to accept any job offered. Work or starve is a significant incentive.
  7. Increase the eligibility age for Social Security. Starting with those age 50 or younger increase the full eligibility age by one year, for those 45 and younger by two years, for those 40 and under by three years, and for those 35 and under by four years. Further adjustments for those 30 and under should be considered as longevity increases. The same increases should be applied to early eligibility at reduced benefits.
  8. Means test cost of living increases in Social Security benefits for those 50 and under as they become eligible.
  9. Means test contributions for Medicare. Based on that means testing, those who can afford it should pay double the contribution rate as those who cannot.
  10. I am a believer that every participant in society should pay some level of taxes. To do otherwise is to immunize those participants from the consequences of their actions. To that end, Bill O’Reilly raised an interesting notion of providing a national sales tax limited solely fund Medicare. Only a sales tax would accomplish that participation.
  11. Eliminate the earned income tax credit – it is a pernicious form of welfare that gives the impression that the recipient is actually earning income. If an increase in welfare payments is required let it be direct and measurable. If the level of income subject to tax is too low, then increase it.
  12. Eliminate the entire Department of Energy and every one of its programs that suck up tax dollars without addressing rationally the very purpose for which it was created – energy independence. (Pie in the sky dreams of a landscape crowded with windmills and solar panels is foolish and deceives the public into thinking that it is a realistic and achievable solution. The nation’s energy producers will do a better and more efficient job of achieving energy independence.)
  13. Eliminate the entire Department of Education. Education is the responsibility of state and local governments – not the federal government. I might feel differently about this if there was any evidence that the public education system had improved in any fashion. Just the opposite, however, is true. Since the creation, staffing and funding of the Department of Education academic achievement has declined vis-à-vis the rest of the industrialized nations. If there is an economic imbalance between states, use block grants.
  14. Roll back new regulations to those in place at the end of 2008. A recent report from the Heritage Foundation indicates that Mr. Obama has added an additional $83 Billion in annual costs to the economy through new regulations.
  15. Fast track approval of the Keystone pipeline and facilitate long term production contracts with Canadian producers who can deliver product to the pipelines.
  16. Fast track approval of at least one, preferably two, new oil refineries – there are refineries proposed now for Yuma, Arizona and Union County, South Dakota and recently there was talk of a proposal in the Pittsburgh, Pennsylvania area.

Please note that I have not suggested any “stimulus” for private business, nor any tax incentives. Sustainable business does not need subsidies. Mostly it needs government to stop interfering and imposing more hurdles to commencement, growth and stability of business enterprises. Also please note I have not proposed lowering taxes even though I think taxes are too high and that government is too large and too intrusive. For the time being, it would be beneficial for all of us if government would, at least, stop growing and that additional revenues generated through business growth and job creation be used to reduce the nation’s staggering debt – not creating, expanding or funding new government programs.

When Mr. Obama gets serious about actually protecting the middle class and the working poor, he will deal with these issues instead of chanting about increased taxes on the wealthy to fund more social programs designed to create more dependency on government.