RightChange: Breaking Down Obama’s Tax Plan

President Obama once said he was a  “warrior for the middle class” and was against the Wall Street “fat cats.”  That’s all for show; especially if you look at where his campaign contributions are coming from.  If you want insight into who Obama is really fighting for, look no further than his latest tax proposal.

Despite what the Democratic talking heads are saying, the current state of our U.S. economy is the worst since the Great Depression and the idea that we are in recovery is laughable.   As we wrote last week, the Congressional Budget Office (CBO) reported that we are in the longest stretch of the highest unemployment since the Great Depression. 

Every American is paying more for gas, groceries, and every other commodity.  The average middle income American is hurting from shelling out the extra dough to pay for all of these expenses.  It is one of the worst times for the middle class to be paying a higher rate in taxes.  President Obama said, “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street," but his latest tax plan shows otherwise.

The Obama-Geithner plan would lower the corporate tax rate by 7% - from 35%-28%.  At the same time, it RAISES the personal income tax by 4.6% - from 35% to 39.6%.  There are more tax hikes to come after that:

“President Obama's 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.

Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate.

Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.”

Basically, if you make $250,000 a year or you’re trying to retire soon, you are a target in Obama’s tax plan:

“Of course, the White House wants everyone to know that this new rate would apply only to those filthy rich individuals who make $200,000 a year, or $250,000 if you're a greedy couple. We're all supposed to believe that no one would be hurt other than rich folks who can afford it.

Who would get hurt? IRS data show that retirees and near-retirees who depend on dividend income would be hit especially hard. Almost three of four dividend payments go to those over the age of 55, and more than half go to those older than 65, according to IRS data.

But all American shareholders would lose. Higher dividend and capital gains taxes make stocks less valuable. A share of stock is worth the discounted present value of the future earnings stream after taxes. Stock prices would fall over time to adjust to the new after-tax rate of return. And if investors become convinced later this year that dividend and capital gains taxes are going way up on January 1, some investors are likely to sell shares ahead of paying these higher rates.”

President Obama’s latest tax plan is puzzling.  Not only does it not make economic sense, but also it goes against his entire campaign platform.  We need a tax code that makes sense and helps our economy.  His plan does neither.

Back To Blog