Obama Is No Friend of the Middle Class
Barack Obama has based much of his re-election campaign on the issue of "fairness" and especially the charge that "the rich" are not paying enough in taxes. Creating a straw man to blame for one's own failures is a classic political ploy, but it raises the question of whether Obama himself has been "fair" to the middle class. With less income, fewer jobs, and mediocre economic growth since Obama took office, the answer is that he has not.
Since Obama claims that he is the champion of the middle class, what does his record actually show? Quite simply that middle-class household incomes have declined by $4,500, while the wealth of his billionaire friends has increased.
None of those billionaire buddies has done more for the president than George Soros, a major contributor to Obama's 2008 campaign and funder of a host of liberal organizations, most importantly Moveon.org. According to Forbes magazine, Soros is the 15th-wealthiest person in America. In mid-2008, his wealth was $9 billion, but that was before the election of his protégé. By mid-2012, it had increased to $19 billion. So while the average Joe saw his family income decline by 10%, billionaires like Soros saw theirs more than double.
It's not just Soros, either. Warren Buffett is also a big Obama supporter. Buffett has done all right, despite his attempts to convince the government to tax his earnings at 30%. That's because, year after year, his taxable earnings are practically zero. The vast majority of his earnings accumulate tax-free in the form of unrealized gains in Berkshire Hathaway stock. Buffett has retained holdings of $46 billion, despite having giving away $11 billion to charity (as of March 2012).
So while Obama campaigns as an enemy of the rich, he has done nothing to slow their accumulation of wealth. It's not the super-rich that Obama has in his sights -- it's the middle class who aspire to wealth. Under Obama's rules, they will never get there.
The individuals who will be most affected by Obama's proposed tax increases are small business owners, professionals, and other aspiring Americans who still believe in the American Dream. One of the problems with Obama's plan to raise taxes on those making over $200,000 is that small business owners do not spend the bulk of their income on themselves. They re-invest it in their businesses. That is how they increase their income and at the same time create jobs for others. When government seizes a greater share of their income, they have less to invest.
Obama's tax increases on those making more than $200,000 would especially harm those small business owners who file as S-corporations. These small businesses don't have the ability to defer their earnings the way Buffett does. For S-corporations, marginal tax rates are already scheduled to increase by 26% on Jan. 1. That means that an additional 9% of capital will be drained from small businesses annually. That's 9% less growth, 9% fewer jobs created, and 9% less prosperity for the nation as a whole (and 9% more revenue for government to squander on Solyndra-like "investments").
As the limited capital available for reinvestment in the private sector is stolen by government, less remains for the middle class. This is the dirty little secret behind Obama's campaigning against "the rich." It is not Soros or Buffett he is going after -- it's the small contractor, shop owner, or local internist. When Obama writes sneeringly about "white man's greed," it's these hardworking Americans he has in mind.
America has seen this "blame the rich" politics before -- during Al Gore's failed campaign of 2000, during Jimmy Carter's re-election campaign of 1980, in support of Johnson's Great Society expansion of government in the 1960s, and especially as the rationale for FDR's massive expansion of regulation and taxation in the 1930s and 1940s.
In fact, Obama's assault on the middle class comes right out of the New Deal playbook. In 1930, the marginal rate for those earning $275,000 was 10%. By 1940, Roosevelt had driven it up to 42% with marginal rates for those making more than $275,000 as high as 79%. Make no mistake: Obama's 26% tax increase for affluent Americans is only the beginning. His ambition is to quadruple rates as did FDR in the thirties. That would create a de facto income cap, with government confiscating nearly all of what successful businesses earn.
This confiscation of profits would put an end to economic growth, just as it did under FDR. Under FDR, per capita income (inflation adjusted in 1996 dollars) did not surpass its 1929 level of $6,752 until 1939. Even by 1952, the last year of Truman's presidency, after-tax real per capita income had barely risen above that level. The middle class did not prosper under 20 years of liberal governance.
Obama's attack on the middle class will have the same result. Already in 2012, economic growth has slowed to 1.7%. As Gov. Romney points out, 23 million Americans remain unemployed or underemployed. And economists warn of another recession in 2013 if Obama's tax and regulation policies are allowed to stand.
By contrast, Romney's five-point plan for the economy will lift incomes for the middle class by creating growth. Most Americans still believe that America is the land of opportunity. Obama's crass politics of class warfare only discourages growth of the private sector, as indicated by a significant decline in corporate investment in the third quarter of 2012. A recent statement signed by 80 leading CEOs revealed that government intrusion is the main reason they are not expanding their businesses. By cutting taxes and restraining spending, government can make it possible for businesses to grow and create jobs. Instead, Obama's hostility toward the private sector has destroyed jobs for all, but especially for the middle class.
The full effects of Obama's tax and regulatory policies will become apparent only after the election. Already, though, business sentiment is turning negative, the stock market is tanking, and major layoffs are being announced. If Obama is re-elected and he continues his assault on the middle class, America will join Europe in recession. Coming so soon after the 2008 recession and with no expansion of the economy in between, a 2013 recession would be devastating for the middle class.
It would also be almost unprecedented. The second recession that threatens America in 2013 resembles the severe downturn of 1937-38, part of the Great Depression that lasted a decade due to Roosevelt's mishandling of the economy and his hostility toward business. FDR was no friend of the middle class. Neither is Barack Obama.
Dr. Jeffrey Folks has published many books and articles on American culture, including his recent book Heartland of the Imagination (2011).