How a Tax Increase Becomes a Tax Cut
A couple days ago President Obama started saying that if Congress fails to act before the end of the year then the average worker will see a tax increase of $1,000 next year.
The President is lobbying the American people to extend the Social Security payroll tax holiday into 2012.
President Obama also frequently talks about the “Bush tax cuts for the rich”.
Since both are fundamentally the same type of tax change then why is one spoken of as a tax cut while the other is a tax increase?
How can the average voter tell when politician’s are altering the truth when they talk about taxes?
Today, I’ll attempt to peel away a bit of the veil of political doublespeak surrounding what is and is not a tax increase.
Tax Increase: A Definition
Lets start with a logical, straightforward definition of a tax increase.
When anything in the tax code results in a taxpayer paying at a higher tax rate than in the previous year.
Conversely, we can define a tax cut.
When anything in the tax code results in a taxpayer paying at a lower tax rate than in the previous year.
There are all kinds of triggers in tax code law than can result in a tax increase or a tax cut.
A Tax Increase vs. a Tax Cut
For example, last December Congress passed the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010“. It was the compromise law that extended the Bush tax cuts through 2012.
A major provision of that law is a one-time, one-year change in the tax code reducing Social Security payroll taxes. That change resulted in an average $1,000/worker increase in take-home pay this year.
It is called a “payroll tax holiday”. It expires December 31st of this year.
Is it a tax decrease for this year? Of course! Why? Because a change in the tax code resulted in a lower tax rate for every American worker holding down a job this year.
Is it a tax increase for next year? Absolutely! The $1,000 cut we have this year expires resulting in a $1,000 more in withholding taxes workers will have to pay next year.
President Obama’s $1,000 Tax Increase
The tax increase that President Obama has just started talking about comes when this year’s “payroll tax holiday” expires on December 31st.
President Obama correctly characterizes it as a tax increase… unless, of course, the payroll tax holiday is extended into 2012. He actually proposed to make it a larger tax cut next year than it is this year.
Unfortunately, what the President fails to say is that it was only a temporary one-year tax cut in the first place and that the reduction weakened Social Security revenues.
Those are apparently unimportant little details often swept under the rug by politicians.
The “Bush-era Tax Cuts”
Back in 2001 and 2003 two laws were passed early in the Bush Administration that reduced taxes across the board for all Americans and corporations. They were enacted in response to a recession caused when the technology bubble burst in 2000. They have come to be called the Bush-era tax cuts.
Just like the payroll tax holiday expires at the end of this year, the Bush-era tax cuts had a built-in expiration date, too – 12/31/2010.
Ironically, the law that created the “payroll tax holiday” also extended the Bush-era tax cuts to 12/31/2012… coincidentally, to just after the 2012 elections. Isn’t that special? 😉 😉
Ending the “Bush tax cuts for the rich”
Now we enter the murky world of political doublespeak.
In 2013, President Obama and all Democrats want to keep the Bush-era tax cuts for everyone making less than $250,000 a year but end them for everyone making $250,000 or more.
There is nothing wrong with that idea.
What is wrong is that the President and others are being intellectually and politically dishonest about what they want.
By the definition above everyone earning $250,000 a year or more would get a tax increase in 2013. Why? Because a change in the tax code would result in those folks paying more taxes in 2013 than they did in 2012.
But President Obama does not call that a tax increase. Instead, he has re-branded it as ‘ending the Bush tax cuts for the rich’.
That is political doublespeak. It is how a tax increase gets turned into a tax cut.
The Wealth Gap
The wealth gap is real. It has grown substantially greater over several decades. It is inhibiting economic growth because the super wealthy, not ordinary small business owners, have so much money they are unable to plow it back into the mainstream economy.
Within the Occupy Movement the whole concept of the 99% is based on the growing wealth gap between the super wealthy and everyone else.
It can validly be argued that the super rich can afford to pay more taxes than they do now. They can and given our enormous national debt they probably should. That is not at issue.
What is at issue?
Moral, intellectual and political honesty. Call, a spade a spade.
If you want to say the rich should pay more taxes then just say so up front. Let the American voter decide for themselves what is right and what is wrong.
Don’t pretend it is something different from what it is. Don’t call a tax increase a “tax cut for the rich” when it isn’t. It insults the intelligence of every voter.
All politicians, not just President Obama, bend reality to score political points. For their own ends, like President Obama, they will twist a tax increase into a tax cut if it will help achieve a political goal that gets them reelected.
It is our responsibility as American citizens to separate the wheat from the chaff to make the right choices when we evaluate the quality of our representatives.
Does the wealth gap justify that the super wealthy should get a permanent tax hike to fund a growing but essentially temporary government debt problem?
Are the super wealthy the cause of our national debt problem and, as a result, should they be made to pay more than they already do?
Given its incredibly dismal fiscal management of our tax dollars, is the federal government the right place to entrust our hard earned wages to create jobs and grow the economy?
These heady questions are considerations for each and every American voter as we solidify our own views.
Then, as informed voters at the ballot box in 2012, we can vote for or against an elected official based on those views.
As Harrison Ford was warned in “Indian Jones and the Last Crusade“…
Choose. But choose wisely, for while the true Grail will bring you life, the false Grail will take it from you.