He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is a graduate of Harvard College and Harvard Law School. He is author of The Obamacare Disaster, from the Heartland Institute, and President Obama's Tax Piracy, and his latest book: America's Ticking Bankruptcy Bomb: How the Looming Debt Crisis Threatens the American Dream-and How We Can Turn the Tide Before It's Too Late.
Latest posts by Peter Ferrara (see all)
- Tax Reform Would Modernize How U.S. Taxes Global Business Income - June 24, 2017
- Saving Money but Costing Lives - June 23, 2017
- A Principled Tax Reform Allows Expensing of all Business Costs - June 23, 2017
Neither President Obama nor any other Democrat ever proposed any middle class tax cut in the fiscal cliff negotiations. All that was ever discussed is continuation of the same middle class income tax rates that have been in effect for 12 years now.
Those income tax rates reflect a middle class tax cut that was adopted by a Republican Congress and a Republican President 12 years ago, which virtually all Congressional Democrats voted against at the time. That is why they are called the Bush tax cuts. President Obama told us when he was running s office that the Republicans only cut taxes for the rich. But now all we have heard is about how we can’t let the Bush tax cuts for the middle class expire.
Also, no Republican ever proposed any tax cut for “the rich” in the fiscal cliff negotiations. The White House rhetoric about more Republican tax cuts for “the rich” in the fiscal cliff talks was so disconnected from reality, especially as reflected in Jay Carney’s rambling and raving, that it is evidence of mental disability or illness. All that the Republicans wanted in the fiscal cliff discussions was to continue the same tax rates for everyone as have been in effect for 12 years now.
Those Bush tax cuts from 12 years ago cut income taxes by a higher percentage for low and middle income workers than for “the rich” (a crass term reflecting low class social envy that has no place in our politics). The top tax rate was cut 11%, from 39.6% to 35%, while the bottom tax rate was cut by 33%, from 15% to 10%.
The Gingrich-Ferrara-Levin Middle Class Tax Cut
In December 2008, Newt Gingrich and I published an article in the Wall Street Journal proposing to cut the middle class tax rate by 40%. We proposed cutting the 25% income tax rate that then applied to single workers earning $32,550 to $78,850, and married couples earning $65,100 to $131,450 down to the 15% tax rate that applied to incomes below that level. More recently, national radio talk show host Mark Levin has been proposing a very similar middle class tax cut.
That tax cut would establish a flat-rate tax of 15% for close to 90% of American workers. We said at the time that marginal tax rates for middle-income families in the 25% tax bracket are too high, and that is still true today. Add in effective payroll tax rates of 15% and state income taxes, and middle income workers are laboring under marginal tax rates approaching 50%. No wonder middle-income wage growth has slowed sharply. Reducing marginal tax rates for these middle-income earners would lead to income increases for middle-income workers, just as reducing excessive marginal tax rates for higher-income workers did, going all the way back to the Kennedy tax cuts of the 1960s.
The Ryan-Camp Tax Reform
But there is another, different, Republican middle class income tax cut already in the works in Congress. House Budget Committee Chairman Paul Ryan (R-WI) proposed in his 2012 and 2013 budgets, both adopted by the full House, individual income tax reform with just two rates, 10% applying to families earning less than $100,000 per year, and 25% applying to families earning over $100,000.
Those are the average effective tax rates paid at those income levels today, which means that in theory enough deductions and loopholes could be eliminated to enact such tax reform on a revenue neutral basis. But tax reform does not need to be revenue neutral. It can and should be a net tax cut!
That is especially true in the context of an overall budget proposal that cuts spending to reach a balanced budget within a reasonable time. Ryan’s proposed 2013 budget would slash the deficit by 86% in 4 years, by 2017, as scored by CBO. The federal deficit by 2017 would be $182 billion, compared to deficits of well over $1 trillion for each of Obama’s four years as President. That deficit would be less than 1% of GDP, negligible and easily manageable.
That would be with Ryan’s proposed tax reform. The lower rates of that reform would produce an economic boom, most likely balancing the budget in four years.
Ryan’s 2014 budget, which will be out in late February or early March, should propose enough additional short-term spending cuts to reach balance within 4 years, even with the unrealistic static scoring used by the Congressional Budget Office (CBO). Ryan’s 2013 budget proposed $6.8 trillion in spending cuts over the first 10 years. Ryan should bump that up a bit to $8 trillion or so in his 2014 budget to achieve that balance, as scored by CBO.
With that balanced budget in short term prospect, conservative and Tea Party grassroots, think tanks, foundations and other organizations would loudly rally behind the Ryan budget. That little additional reach, where Ryan and the Republicans could say this is how we would achieve an actual balanced budget in the near term, would make an enormous difference among the public. Conservative organizations (see, e.g., the new DeMint Heritage Foundation) should step up and dynamically score the Ryan budget, showing that it would more than achieve balance in the short term.
House Ways and Means Chairman David Camp (R-MI) is poised to pick up the Ryan tax reform proposal, and begin to move actual legislation through the House, starting in March. That would cause a further explosion of grassroots support for these Republican tax and spending proposals.
The tide is already turning against Obama and his Democrats. This time when the President stands up and runs a litany of fabricated charges regarding the specific cuts the Ryan budget would make, as he did in regard to the 2013 Ryan budget, conservative and all honest media organizations must stand up and say, “Stop Lying About the Ryan Budget, Mr. President!”
The President made up false charges that Romney’s tax plan would raise taxes on the middle class, when it actually proposed the largest middle class tax cut in American history. Then the President devoted hundreds of millions in false advertising to ram that dishonest caricature of the Romney tax plan down the throats of the American people, while Obama was the only candidate in the race running on a tax increase.
In 2012, Obama similarly fabricated specific cuts in the Ryan budget and then campaigned against that dishonest caricature of the Ryan/Republican spending proposals. Obama is taking advantage of the excessive politeness of conservatives in failing to call out Obama for deceitful dishonesty when he is blatantly misrepresenting conservative Republican positions as a strategy to duplicitly discredit reasonable proposals. Conservative organizations and honest media need to call out the President specifically on that strategy when he returns to that this year.
The Fiscal Cliff Deal
The fiscal cliff compromise seems to focus the Obama tax increases on the top 1% of income earners, singles making over $400,000 and couples making over $450,000 a year. Two-thirds of the taxpayers reporting that income are successful small businessmen, which drive the new jobs in the American economy.
For these now officially disfavored taxpayers, the top two income tax brackets will climb by close to 20% (counting the reestablishment of the Pease deduction phaseouts at these higher income levels, which are also in the deal), the capital gains and dividend tax rates will soar by 58% (counting the Obamacare tax increases also now going into effect), Obamacare raising the Medicare payroll tax by 62% on these most productive workers is also now going into effect, and the death tax is saved from the original Bush grave with a new 40% top tax rate.
Watch closely for the results. Except for the payroll tax increase, I predict the other tax increases will result in less rather than more revenue. When combined with Obama’s ongoing regulatory tsunami, record-smashing spending and deficits, and the Fed’s continued mischief, I predict as well that the economy will go back into recession later this year, or next. If that happens, total federal revenues will fall rather than rise, and the deficit will rise rather than fall.
Contributing to that further deficit and debt increase is that the fiscal cliff deal involves zero spending cuts. It actually delays the sequester by two months. That reflects the actual budget policy of President Obama and the Democrats, of no spending cuts, and no entitlement reform, even reform that would make entitlements more efficient and effective in helping the poor and seniors while still reducing spending, like the 1996 welfare reforms, and personal savings, investment, and insurance accounts for Social Security.
Instead what we hear from the left is further idiot drivel, like the press release on the fiscal cliff deal of the so-called MoveOn.org (what a dumb name for an organization). That release criticized President Obama from the left for not increasing taxes on “the rich” enough to make them pay their “fair share.” The press release stated, issued in the name of Move On Executive Director Justin Ruben:
We just finished an election in which the American people made clear that they want the wealthiest 2% to finally pay their fair share of taxes, but this agreement fails to meet that test…. [A]t the end of the day, poor and middle class families deserve a better deal than more tax cuts for the rich…. As budget debates continue, MoveOn members will continue to fight for a more equitable tax code in which the wealthy finally pay their fair share….
This is representative of the dishonest rhetoric we will hear from the Marxist Progressives not only at MoveOn.org, but also at the New York Times,Washington Post, and elsewhere in the Democrat party media. CBO reports official IRS statistics as showing that the top 1% of income earners pay 39% of all federal income taxes, 3 times their 13% share of income. It also reports that the middle 20% of income earners pay only 2.7% of all federal income taxes, while earning 15% of the income. Yet the Marxist Communists at MoveOn tell us the wealthy still don’t pay their fair share, even after all the tax increases on them just adopted in the fiscal cliff deal. Moreover, they tell us that those tax increases are still “more tax cuts for the rich.”
This is all so unhinged from reality that it is evidence of mental disability or illness on the part of Mr. Ruben. And that more widespread mental disability or illness among this nation’s current leadership has this generation of Americans on the expressway to the decline and fall of America.
[First published at the American Spectator.]