Obama Bows to the Whining of the Rich
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The Heritage Foundation, the right wing’s most lavishly funded think tank, doesn't much like the federal budget plan the Obama White House released last week. Heritage hired guns are blasting the Obama blueprint for fiscal 2011 as perhaps the “most irresponsible budget ever.”
What has the wealthy and their biggest fans so upset? Certainly not the deficit, the cause for concern they profess so earnestly.
Growing budget deficits, as economist Polly Cleveland pointed out last week, can actually work to rich people’s advantage, in part because the rich hold so much of the government’s debt. The interest payments the rich collect on that debt “tips” America’s top-heavy distribution of wealth even more their way.
The rich can live — quite well — with budget deficits. But taxes drive them crazy, and President Obama’s second budget is proposing, over the next decade, $970 billion in new taxes on America’s most affluent.
But do these tax hikes, as critics charge, “soak the rich”? Not hardly. Obama’s budget, if adopted, will inconvenience the rich, not soak them.
For the rich, that may be almost as bad. Rich people simply detest inconveniences. Unlike people of modest means, they can afford to avoid them — and the U.S. tax code, for years now, has made that affording ever easier.
Just how easy becomes painfully clear upon perusing the fine print of the tax changes the Obama White House is proposing.
One example: Under current law, corporate CEOs can classify their workers as “independent contractors,” a neat maneuver that denies workers the benefits normal employees receive and saves corporations vast sums that end up inflating executive paychecks. The Obama budget proposes new rules that would make these corporate misclassifications more difficult to cook up.
Current law also lets corporate execs who get nailed cheating consumers deduct off their taxes the punitive damages courts order them to pay. How convenient. The new White House budget would make executives and their companies much more likely to eat these damages, on their own.
Another convenience the rich enjoy and exploit: Current law gives the IRS only three years to discover whether wealthy tax filers are neglecting to report income from foreign assets on their tax returns. After three years, the IRS can’t levy any penalties on the wealthy tax avoiders they catch. The Obama budget proposes to double this statute of limitations to six years.
The income the wealthy do already report, meanwhile, will face higher tax rates under the Obama budget plan. In the 2011 federal fiscal year, couples making over $250,000 a year — and individuals over $200,000 — will pay taxes at a 39.6 percent rate on ordinary income over $373,650.
These taxpayers, under the Obama plan, would also pay higher taxes on dividends and “capital gain” income from the sale of stocks and other assets. The current 15 percent tax rate on these income streams would jump to 20 percent.
Some super-rich taxpayers — the top guns at hedge funds, venture capital firms, and other investment partnerships — would pay even more under the Obama budget plan. These power suits have been claiming the bulk of their income as “capital gains.” The Obama budget, if Congress goes along, would nix that claim.
In 2008, 25 hedge fund managers took home at least $75 million. In 2011, under the new Obama budget, the top 25 would pay taxes on most of their millions at a 39.6 percent rate, over double the current 15 percent capital gains rate.
But these hedgies and their awesomely affluent friends really have little reason to angst about these new rates. By any reasonable historical yardstick, they’ll be doing just fine if the new Obama budget gets through Congress as is.