Obama’s Attack on the Middle Class By Paul Craig Roberts

Dandelion Salad

By Paul Craig Roberts
March 30, 2009 “Information Clearing House

Obama and his public relations team have made it appear that his trillion dollars in higher taxes will fall only on “the rich.” Obama stresses that his tax increase is only for the richest 5 percent of Americans while the other 95 percent receive a tax cut.

The fact of the matter is that the income differences within the top
5% are far wider than the differences between the lower tax brackets and the “rich” American in the 96th percentile.

For Obama, being “rich” begins with $250,000 in annual income, the bottom rung of the top 5 percent. Compare this “rich” income to that of, for example, Hank Paulson, President George W. Bush’s Treasury Secretary when he was the head of Goldman Sachs.

In 2005 Paulson was paid $38.3 million in salary, stock and options. That is 153 times the annual income of the “rich” $250,000 person.

Despite his massive income, Paulson himself was not among the super rich of that year, when a dozen hedge fund operators made $1,000 million. The hedge fund honchos incomes were 26 times greater than Paulson’s and 4,000 times greater than the “rich” man’s or family’s $250,000.

For most Americans, a $250,000 income would be a godsend, but envy can make us blind. A $250,000 income is not one that will support a rich lifestyle. Moreover, many people prefer lesser incomes to the years of education, long work hours and stress of personal liability that are associated with many $250,000 incomes. In truth, those with $250,000 gross incomes have more in common with those at the lower end of the income distribution than with the rich. A $250,000 income is ten times greater than a $25,000 income, not hundreds or thousands of times greater. On an after-tax basis, the difference shrinks to about
6 times.

The American tax code taxes the $250,000 income at the same rate as it taxes a $100,000,000 or higher income. On an after tax basis, after the federal government grabs 30% in income taxes and state government grabs 6%, the “rich” man or woman or family earning $250,000 has $160,000. In New York City, where there is a city income tax in addition to state and federal, this sum diminishes further. State sales taxes take another 6 or more percent of most consumption expenditures.

When all is said and done, the after-tax value of a $250,000 income in New York City is about $140,000.

Is this rich? It might be in a small town in Alabama, but not in New York City. The “rich” person or family won’t be purchasing a Manhattan apartment, much less a brownstone. They won’t be driving a luxury car. Indeed, they won’t be able to afford a parking garage for an economy car. If they fly anywhere, it won’t be in a first class seat.

For the most part, $250,000 incomes are located in large cities where the cost of living is high. For example, a husband and wife who are associates at major law firms, each of whom works 60 hour weeks and has no job security, earn $125,000 each. They might both have student loans to pay down. For the Obama administration to lump these people in with Hank Paulson or billionaire hedge fund operators is propagandistic.

What is the difference between the $250,000 “rich” income and the $245,000 “non-rich” income? After Obama’s tax scheme goes into effect, the $245,000 income will benefit from a tax cut, and the $250,000 will have a tax increase. Will people in the 96th percentile ask for pay cuts that will drop them into the 95th percentile?

In America, the truly rich are those in the top 0.5% of the income distribution. These are the people with yachts, private airplanes, and who are still rich after they lose half their wealth in a stock market collapse caused by government policy that accommodated financial gangsters.

“Oh well, I was worth $600,000,000 last year and only $300,000,000 this year. Perhaps we should stop drinking $1,000 bottles of rare vintages and move down to $100 a bottle wines. Probably shouldn’t buy that new yacht or that villa in the south of France.”

The upper middle class with $250,000 gross incomes are major losers of the financial collapse. Many of the people in this income class are leveraged to the hilt in order to maintain appearances and can be swept away as easily as the very poor. But those who were frugal and invested for their future have lost 50% of their savings. These wiped out people are the ones who will bear the brunt of Obama’s tax increase.

If the tax rate on a multi-million dollar annual income goes up by 5 percentage points, the cutbacks won’t really affect the lifestyle. But for the $250,000 gross income group, it means no prospect of private schools and Ivy League education for the children, who will be attending state colleges with the rest of the non-rich.

Obama is attacking the only income class that has any independence– the upper middle class professionals. The real rich are few in number and seldom present any opposition to government. Recently, the New York Times reported (March 23, 2009) that the 400 richest Americans’ “share of the nation’s total wealth has nearly doubled to more than 22 percent.” The average income of the 400 richest Americans is $263 million annually. That is 1,052 times the income of the “rich” $250,000 income.

What the Obama administration is really doing is taxing ordinary people in order to bail out the super rich. The 95% of Americans who get the tax cut will find that it is offset many times by the depreciation in the dollar and the raging inflation that will result from monetizing the multi-trillion dollar budget deficits made necessary by the bailouts of the banksters.

In the United States, government has become expert at manipulating both left-wing and right-wing ideologies. It keeps those on both ends of the spectrum set at each other’s throats in order to ensure the government’s continuing independence from accountability.

Historically, the definition of a free person is a person who owns his own labor. Serfs were not free, because they owed their feudal lords, the government of that time, a maximum of one-third of their labor. Nineteenth century slaves were not free, because their owners could expropriate 50% of their labor.

Today, no American is a free person. The lowest tax rate, not counting state income, property tax and sales tax, is 15% Social Security tax and 15% federal income tax. The “free American” starts off with a 30% tax rate, the position of a medieval serf.

In medieval Europe, when tax rates reached beyond 30%, serfs rebelled and killed their masters.

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan administration. He is a former associate editor of the Wall Street Journal and university professor of economics.

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12 thoughts on “Obama’s Attack on the Middle Class By Paul Craig Roberts

  1. Pingback: Pepe Escobar: There will be class war and blood « Dandelion Salad

  2. It is absurd to count $250k as middle class.
    Taxation is, however, usually progressive, and the highest bracket applies only to that amount over $250k, but the codes not out yet… You don’t go into the 60% bracket on all income the moment your take passes from $249.9K and $250k, only on the overage.

    That said, consider why the few cities render $250k the ‘middle class’ who can’t afford parking (a huge exaggeration, btw). Rents have been systematically deregulated and de-controlled, beneficiaries of the balloon prevail, and retail follows the money, rents continue to escalate, the yuppification of NYC has succeeded in pushing out the people in favor of the super wealthy, the culture of the city is now gone, with only shopping and arrogant rich people in expensive shoes ogling their reflections in store windows.

    What is confounding is that Bloomberg is ‘forced’ to cut service and raise fares on mass transit (i.e. what everyone needs in order to get to work who isn’t limo-driven, and who is forced to live in far-flung outer-burros, hence yet another massive tax on the true middle, or working class).

    Where was Bloomberg when all that money and all those bonuses were being paid? Why wasn’t the city taxing wall-streeters to smithereens, putting aside the surplus that the unprecedented wall-street boom should have begat?

    Indeed Upstate NY remains in squalor, yet property taxes there are forced to be double and triple that of New England to sustain schools (and support endemic NY-style corruption no doubt). Once again a vast state tax on the poor, while the bonusees got away with Botch’s federal tax break for billionaires. Now Albany is completely buried in budgetary hell, cutting back on everything after an epic era of profits on wall street.

    So, not being a finance guru, I nevertheless disagree with PCR on this one, tax any/all income over $250k (or maybe keep the baracket at $350k, where it is now) by 60% instead of the prevailing 35% over the $350K top bracket. If the feds won’t do it, the state must. If not the state, then the city. Unless you’ve invented something grand, you don’t get away with $5-50 mil. bonuses for managing hedge funds. Give up 50% to the workers who created the value you trade, by assuring they have deserved housing, transportation, health-care and a living wage.

    But enough of centralized taxation. Workers need to learn how to get out of the rut of being wage-slaves to industrial capitalism. Workers need to organize, not only as unions against the man, but as co-owners in their communal enterprise.

    Likely workers are stuck in the same abusive mindset and pattern that management and executives are in maximizing profits at their expense. They shouldn’t be afraid of organizing cooperatives in which all have a self-managing ownership stake in the success of the enterprise. Why must ‘capitalism’ be greed by singularities, why can’t a company work as one, and benefit from this model that apparrently makes so much money for executives?

    For the comfort of being a ‘cog in a machine’ and not having to actually vest themselves in the success of the enterprise, they are giving up any self-determination in their livelihoods, and any chance to really benefit from their hard-earned efforts which improved the success of the venture.

    It’s a miserable trade-off, and those who insist it’s simpler to be serfs, likely deserve to be serfs and will forever be victims.

    There is more to work than 9-5 wage slavery, it is after all, your lifetime, and nobody can pay you enough per hour for that, only to fire you when your job is outsourced, or cut-backs occur because of bad decisions of management.

    It’s a model worth trying, it would take a major shift in psychology, but once upon a time, the major ‘industry’ in the nation were family farms, small enterprises where all had a stake in success (post-slavery, and pre industrial capitalism).

    Some form of so-called ‘anarcho-syndicalism’ is possibly a new path to lead us out of all this centralized control of revenue, failed governmental efforts to rebalance the vast income gap created by the present model.

    This model is a trap, where workers give up their lives for the myth of job-security, only to get canned in the end by the greed-barons, and hope the welfare state will provide for them via tax revenues.

    But give up the Amerigoon military-industrial mania and we’d all have more than enough! We spend over 50% of our tax revenue (net of social security) on the military. It’s silly to argue about tax law with that going on.

    • BTW:

      In 2000, the top bracket started at $288,350. The tax on income over that was at almost 40%.

      By 2003, the top bracket started at $312K, and the tax (under Botch’s cuts) was down to 35%.

      Seems we were in much healthier fiscal shape in 2000 than now, after 9 years of raising the bracket and lowering the top rate. So much for ‘trickle down!

      That’s not counting the ridiculously low capital gains rate (which should apply to all non-wage gains excluding sale of a primary residence) which once again favors the inveting class.

      But once again, all is moot without eliminatng the 55% military expense.

    • Lots of great points, Natureboy. Thanks for adding the point about the military expenditures. Time to bring our troops home, close all those hundreds of military bases and stop funding weapons and planes we don’t need.

      The key is for the workers to control their own work/business/company. WE are the economy.

  3. As of the 2006 census only 1.93% of households acquired an income of over $250,000. (I agree with dw above). To try to categorize them as middle class and even worse to equate their situation as equal to the poor, “Many of the people in this income class are leveraged to the hilt in order to maintain appearances and can be swept away as easily as the very poor” is absurd, and shows and huge absence of understanding and compassion for the poor.

    Certainly it would be idiotic to structure a tax system in which a person making $251,00 gross income would end up with less take home pay than a person making $249,000; but 1) I do not believe that that would be the case, and 2) I believe that the central point of your argument is not about that small disparity; but is instead intended to misrepresent reality.

    Certainly a tax structure should progressively increase throughout and not make a giant imposing leap because of a $1 change in income, from $249,999 to $250,000; but to pretend that individuals in these households gathering “only 5 times the median income” and only 15, 25 times poverty income are poor helpless victims shows great ignorance.

    If you think $300,000 is roughly equal to $30,000 I’d love to do some trading with you. I doubt though that you’re really that stupid. More likely you’re just trying to pull the wool over some people’s eyes.

    It will be a great day in America when individuals and political parties can once again include the working and the poor in the political debate. The struggle between the interests of the rich and the very rich is a narrow one. Some 20% of American families earn incomes of less than $20,000 and the next 20% earn incomes of less than $40,000.

    I have a recommendation for the middle class victims stuck in the horrible minority position of having an income in excess of $250,000 but not being as completely rich as they would like to be; leave the small helpless minority, quit your job; you can work at McDonalds instead or Walmart or a local diner; there are schools that need janitors. There are so many ways to escape the “victimhood” of the situation. Its easy to get to the bottom forty percent, and once you get there you can learn what it really feels like to be attacked by your government.

  4. just as RWR put a luxury tax on automobiles costing over $25,000.oo[an average mid sized US sedan/truck, radio and heater today] hit the middle class who takes the brunt of the taxation, again.
    Arnie said he would not raise auto tax’s, and suprise, suprise, he doubled it in California, and the Citizens of America, you already know California leads in innovation, beware of more taxation.

    Freedom from tax is what built this country, liable for tax[Fed., St., Loco, sales, registration, property, labor, and lasly the sin tax, or the sin of taxation], caused the countries demise.
    Now the answer is to raise tax’s ! Okey-dokey, umemployed homeless, people can’t pay tax’s! Who’s going to carry the burden of the “new Idea” of taxation?
    Those whom still own something? Yes, until everyone has nothing, the tax obligation will be procured, then you’ll yeild to the “Master”.

  5. at 250k i think you have left the middle class. just where in this country is 250k in the middle class? maybe in New York city, or San Francisco or San Jose. But where else? When the average income is about 50K why would most Americans have any pity for those so far above them? Thats about 5 times what they make.

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