John Feehery: Speaking Engagements

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Soak The Rich

Posted on July 26, 2010
The Obama White House wants to get those damn rich people.

If there is any clear message coming from these characters that are currently running Washington, it is that rich people are bad and they must be taxed more.

This shouldn’t be much of a surprise.  Mr. Obama was pretty consistent during the campaign that he didn’t think that rich people paid their fair share.  Of course, half the people in this country pay nothing in Federal income taxes and the top one percent pays about 40 percent of the taxes, but I guess that is beside the point.

The battle cry from the President and his team is:  skin the rich people.

As populist rhetoric, I am sure that this kind of attack has some appeal in some quadrants of the country, and indeed, it is popular in some parts of the world.  It helped propel Hugo Chavez to power, and that Morales dude in Bolivia loves it too.

But usually, going after the so-called rich doesn’t work politically here, mostly because it doesn’t work in policy sense.

Really rich people hire really smart tax attorneys who find ways to avoid taxes.

Small business owners, on the other hand, don’t have that kind of money, and when these tax increases go into effect, they get skinned.

Because Republicans used reconciliation to get a series of tax cuts aimed at stimulating the economy at the beginning of the last decade passed into law, those tax cuts are about ready to expire, and the old rates are about ready to spring back into effect.

These automatic tax increases, if they are not delayed, will hit Americans of all incomes and at all stages of life, from the child tax credit, to the marriage penalty to the death tax. The Obama Administration is arguing that he wants to extend the tax cuts for only those who make less than $200,000 a year.

But as an analysis from Americans For Tax Reform points out, this kind of posture is actually bad for the economy.  Here are the points from that analysis:

  • The Obama Administration and Congressional Democrats have said that they want to raise taxes in the top two income tax rates in January 2011.  Under their plan, the 33 percent rate will rise to 36 percent, and the 35 percent rate will rise to 39.6 percent automatically in January.  These rates affect families and small business owners earning at least $200,000 per year

  • Unlike corporations, small businesses usually don’t pay their own taxes.  Rather, business profits flow through to the business owner.  The business owner pays taxes on her small business by adding the profits to her income tax form.  Therefore, personal income taxes are the same thing as small business taxes.

  • According to the IRS, most small business profits pay taxes in households making more than $200,000 per year.  The IRS keeps track of two types of small business income: sole proprietors, and “pass-through” entities like partnerships and S-corporations.

  • All small businesses.  There were 30 million tax returns reporting small business income in 2008.  On net (profits reduced by losses), these owners reported business profits of $981 billion.  A large chunk of this net profit--$488 billion—faced taxation in households making more than $200,000 per year.  A majority of small business profits will face a tax rate hike under the Obama-Pelosi-Reid plan.

  • Sole proprietors.  There were 22 million tax returns reporting sole proprietor income in 2008.  On net (profits reduced by losses), these owners reported business profits of $264 billion.  A large chunk of this net profit--$90 billion—faced taxation in households making more than $200,000 per year.  34 percent of sole proprietor profits will face a tax rate hike under the Obama-Pelosi-Reid tax hike plan.

  • S-corporations and partnerships.  There were 8 million partners and S-corporation shareholders in 2008.  On net (profits reduced by losses), these owners reported business profits of $717 billion.  A majority of this profit--$398 billion—faced taxation in households making more than $200,000 per year.  55 percent of S-corporation and partnership profits will face a tax rate hike under the Obama-Pelosi-Reid tax hike plan.


Every once in a while, the President talks about how he wants to help create jobs.

Every day, he finds ways to make those jobs disappear.

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