Politics & Policy

Robama Hood’s Tax ‘Fairness’

You'll know you're "rich" once you've been robbed.

Let’s call it Barack’s small-business tax.

The widely sung “Ballad of Joe the Plumber” has showcased the plight of America’s small businesses and how their fortunes would dim under an Obama administration. According to new figures, the lion’s share of America’s small-business profits would face higher taxes under a President Barack Obama.

The Democratic nominee’s plan to raise taxes on Americans earning more than $250,000 will hit not only Wall Street investment bankers and Hollywood talent agents (not that there’s anything wrong with them!) As it happens, many small-business owners pay taxes as individual and joint filers, not as companies. They very often file as sole proprietors, S-corporations, partnerships, and family farms. Consequently, Obama’s tax plan will hit many small-businessmen and women as well as their small businesses.

According to Americans for Tax Reform, in 2006, $473 billion of the $706 billion in U.S. small-business profits belonged to the same households on Obama’s target list. Thus, 67 percent of profits generated by small businesses appear on individual and joint income-tax returns above $250,000. Hike taxes on those returns and, ipso facto, you raise taxes on the men and women who run America’s small businesses.

The tax hikes Obama envisions would lift the top income-tax rate from 35 percent to 39.6 percent. If Obama manages to remove the cap on maximum incomes subject to Social Security and Medicare taxes, that rate could zoom from 2.9 percent to 15.3 percent. This would create a combined top federal tax rate of 54.9 percent. The last time tax rates were that steep was during the salad days of the Jimmy Carter presidency. Anyone who lived back then knows those salads were wilted.

Some 26 million small-business owners employ 42 million workers. Vacuuming money from the pockets of the former makes it that much harder to hire, promote, and give raises to the latter. With the economy running on fumes, Obama should be itching to cut tax rates, not threatening to hike them.

“Obama’s tax increases will only affect you if you have a 401(k), have any savings, buy things from small businesses or are looking for a job,” observes Americans for Tax Reform president Grover Norquist. “If you fall into one of these categories, his policies will screw you. Otherwise, you’re fine.”

Last week, Obama notoriously told Ohio’s Joe “The Plumber” Wurzelbacher that he did not want to stop him from making more money if he purchased the plumbing company for which he works and thus began to enjoy revenues of $250,000 to $280,000. “When you spread the wealth around, it’s good for everybody,” Obama explained as he defended his tax-hike plans.

This coincides perfectly with what Obama told ABC’s Charles Gibson during an April 16 Democratic primary debate in Philadelphia. Why, Gibson asked, would Obama want to raise the capital-gains tax, even though “in the 1980s, when it was increased to 28 percent, the revenues went down?”

Obama replied, “I would look at raising the capital gains tax for purposes of fairness.”

So, it really is about class warfare, punishing the successful, and picking their pockets so the state can “spread the wealth around.”

Instead, government should foster a favorable environment where people can prosper to the best of their abilities and keep as much of their earnings as possible, minus a low, reasonable amount to finance limited, basic public services.

As for Joe the Plumber, Americans for Tax Reform calculates that if he bought that plumbing business and earned $280,000 in net profits, he currently would pay a marginal tax rate of 33 percent costing $53,742 in income taxes and a 2.9-percent self-employment tax on profits above $250,000, leading to $20,768 in additional tax. This adds up to $74,510 in federal taxes.

Under Obama’s plan, however, he would face a 36-percent rate and taxes of $54,205, plus a 15.3-percent self-employment tax equal to $24,488, totaling $78,693.

Thus, Barack Obama’s victory would let Joe the Plumber watch $4,183 go down the drain.

Deroy Murdock is a New York-based columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution.

© 2008 Scripps Howard News Service.

Deroy Murdock is a Manhattan-based Fox News contributor and a contributing editor of National Review Online, and a senior fellow with the London Center for Policy Research.


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