Veronique de Rugy: The Alternative Minimum Tax Targets the Productive Middle Class, Not the Rich

The taxes Democrats propose to “soak the rich” always seem to miss those who they demagogue for not paying their fair share. They have been “soaking the rich” for decades and keep missing the target. Why?

Veronique de Rugy is one of the most respected economists alive today.

Political Arena Editor Chuck Norton comments from June 2011:

[Note – some people who are just reading the first few paragraphs are assuming that we are endorsing any form of class warfare, actually it is quite the opposite. Class Warfare is foolish because it not only causes wealth to flee, but it eventually destroys wealth. The opposite of poverty is wealth. One cannot be against poverty and against wealth at the same time as it is as perfect an economic paradox as is possible. Class warfare spreads poverty and that is what it is designed to do, because a prospering middle class whose wealth is growing doesn’t a host of government dependence programs.]

UPDATE  10-10-2002 – I have repeatedly talked about “Consolidation” as Obama’s economic theory. Dick Morris is on Sean Hannity right now saying that Obama wants to have one big union, one big corporation in each industry, along with one big government. He is describing Obama’s merging of Corporatism and Socialism. “The left voted for socialism and got Goldman Sachs”. Anyone mind of I just gloat for a minute 🙂 I started saying this over a year ago on my old college blog. We try to always bring you the cutting edge. ]

This came as absolutely no surprise to me. As with most taxes that are “designed to target the rich” they do no such thing and the “alternative minimum tax” is no different.

The Democratic Party leadership pretends to be interested in genuine class warfare. You hear President Obama talk about “taxing millionaires and billionaires” yet the very policies he and much of the Democratic leadership advocate do no such thing.

Democrats have not been interested in taxing the genuinely rich and aren’t today. John Kerry made $5,072,000 in 2003 and had a total federal tax burden of 12.34%. The very wealthy enjoy a 60,000 page tax code that is filled with exceptions. Much of the income those like John and Teresa Kerry receive is defined as “unearned income” or earnings that are not taxable at the wage earner rate so even if the regular income tax rate was increased to 50% the percentage the Kerry’s would pay would only go up by a couple of points, if that.

Yet small business “sub-s corporations” (most domestic small businesses that have between 1-200 employees) are taxed at the wage earner rate  and would be devastated by a 50% rate. Small businesses do most of the hiring in this country. Would someone care to explain how Democrats can claim to be for workers while being against their employers?

We need to be mindful of how a politician defines “The Rich”. I have a close friend who owns a small car repair business. My friend qualified as “The Rich” because his small business is an s-corp that brings in more than 250k per year. Out of that 250K he pays federal and state taxes, his employees, the payroll tax matching, rent, equipment, insurance, parts to put on cars, consumables such as motor oil, advertising etc. What is left is what he gets for his family. He drives an old Chevy truck because that is what he can afford.

The truth is that very few people make over $250k in taxable wages. President Obama talks about taxing billionaires and millionaires (defined as those who make over $250k), but the way the tax code works the wealth of George Soros like billionaires is almost perfectly protected. If George Soros and the Kerry’s paid a percentage like small businesses must, who would fund the Tides Foundation and the Democrat’s 527 groups?

As you may be aware, Google made $3.1 BILLION last year and had a federal tax burden of 2.4%. Google throws fund-raising galas for Obama and the Democrats and have given the Democrats massive donations. Where are the “liberals” condemning the Google Corps of the world? How about GE, whose former CEO now works at the White House, earned 14.2 billion dollars and not only did they have a tax bill of zero, they received taxpayer subsidies.

Yet Obama has waged a rhetorical war against the Chamber of Commerce and who do they represent, you guessed it, most small and medium-sized domestic businesses. Obama blasted the Chamber of Commerce for daring to oppose his plan to tax such businesses at a rate of 39.6%.

[Note: In some cases capital gains is double taxed in that the corporate income tax is paid before hand on the same money. Some connected corporations pay next to zero tax anyways, and if the company is overseas the  corporate income tax is usually less and is paid to another country.  Once again it is the case of the medium sized corporation here in America that gets creamed because we have the highest corporate income tax in the industrialized world and those American companies do not have the resources to get goodies in the tax code or how it is enforced. Japan and several other countries have lowered their corporate income tax dramatically so now the US is the highest. – Editor]

Policies such as ObamaCare, tax increases, and other actions that cause regulatory uncertainty all but force the producers and investors to stop moving their money domestically. They have the option of just parking it or investing it in China, all of which has the effect of transferring the tax burden away from the wealthy onto the working poor and middle class. Democrats are not interested in taxing the wealthy; they are interested in taxing the domestic producer class.

This brings us to Norton’s First Law: big Business loves big government because big government taxes and regulates the small and medium-sized competition out of the competition. This is a staple of modern “Alinsky” style Democrat strategy. This process is called “consolidation”. The goal of leftist philosophy is to control the wealth “rationally” from above so that less is “left to chance”. With all of these small businesses creating wealth that is chaos which is difficult to control. Through consolidation more of the wealth that is created flows through large corporations that are easier to control.

The Obama bipartisan deficit commission was tasked with the challenge of how to raise revenue, grow the economy and pay off the debt. After an exhaustive study the commission concluded that lowering tax rates, lowering the corporate tax rate and simplifying the tax code to encourage tax compliance, and to encourage more wealth to come back home (so it at least can be taxed), was the most prudent course of action. Reagan would have been pleased with those recommendations.

If you wonder why so many jobs have moved overseas and in some cases to places where governments are corrupt and workers are really exploited; now you are seeing the other side of the coin. The private sector and the jobs that go with it cannot be expected to pay for a government that costs $4 trillion a year and hope to remain competitive. If you want to see demand for American labor to rise, start by making it more economical for jobs to come home.

UPDATE – The Obama Administration is using a variation of this very theme that I wrote about last June in it’s recent effort to raise taxes. Rest assured in the 6o,000 plus pages of the tax code that those who are the Democrats biggest donors will not be impacted greatly. As we have seen with Solyndra, the Stimulus Bill, and the other spending in this administration, much of the spending is done for the purpose of Chicago style kickbacks. One can be most confident that taxes will continue to follow that same path just as the so called Alternative Minimum Tax has.

UPDATE II – Warren Buffet opposes Obama’s new “Buffet Rule” campaign trial balloon because he sees it for what it really is. Real Clear Politics (follow the link to see the video):

CNBC: “Are you happy that the way it is being described. Is the program that the White House has presented a million dollars and over your program? ”

Warren Buffett: “Well, the precise program which will — I don’t know what their program will be. My program would be on the very high incomes that are taxed very low. Not just high incomes. Somebody making $50 million a year playing baseball, his taxes won’t change. Make $50 million a year appearing on television, his income won’t change. But, if they make a lot of money and pay a very low tax rate, like me, it would be changed by a minimum tax that would only bring them up to what other people pay.”

CNBC: “Does that mean you disagree with the president’s new jobs proposal which would be paid for by raising taxes on households with incomes of over $250,000.”

Buffett: “That’s another program that I won’t be discussing. My program is to have a tax on ultra-rich people who are very tax rates. Not just all rich people. It would probably apply to 50,000 people in a population of 300 million.”

Indeed. There is a small group of people who greatly benefit from the way the tax code works which is only a small portion of who most people would consider wealthy. Among these people are among the largest political donors in the country.

I am glad that Buffet clarified (read changed his tune just slightly) on this issue because the way his close friend President Obama had presented this it was going to just as we had described it earlier, a new tax that would barely touch him but sock smaller competition and CNBC called him out on it:

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