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Obama's Attack on the Middle Class

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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.

[[mindgap]] 

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.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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In 1831, English peasants revolted because of taxe... by Allan Wayne on Sunday, Mar 29, 2009 at 9:25:16 PM
"In medieval Europe, when tax rates reached b... by Mr M on Sunday, Mar 29, 2009 at 11:12:35 PM
If we abolish personal income taxes and the IRS, w... by Jason Paz on Monday, Mar 30, 2009 at 3:54:58 AM
cry cry cry when their Govt takes their ... by shadow dancer on Monday, Mar 30, 2009 at 7:59:51 AM
A personal favorite from the flickr commons, and o... by Rady Ananda on Monday, Mar 30, 2009 at 8:56:58 AM
It would seem that your time with the Wall Street ... by virginius "gin" arnold on Monday, Mar 30, 2009 at 9:33:14 AM
I get where you're coming from, Gin, and no one ca... by Rady Ananda on Monday, Mar 30, 2009 at 9:43:35 AM
The point is well taken, Ms. Ananda, but the quest... by James Hadstate on Tuesday, Mar 31, 2009 at 5:46:24 AM
Gin is correct the vast majority of Americans make... by E. Nelson on Monday, Mar 30, 2009 at 10:51:57 AM
Poor fellow having to live on only $140,000 a year... by liberalsrock on Monday, Mar 30, 2009 at 11:22:39 AM
Fact is this is another good article that misses c... by Mr M on Monday, Mar 30, 2009 at 12:09:34 PM
.... by Jennifer Hathaway on Monday, Mar 30, 2009 at 12:53:14 PM
The rich would avoid sales tax by buying overseas.... by Mr M on Monday, Mar 30, 2009 at 4:56:14 PM
Mr M, ... and at the very least, it would have be... by James Raider on Monday, Mar 30, 2009 at 1:43:44 PM
"...Moreover, many people prefer lesser incom... by Jennifer Hathaway on Monday, Mar 30, 2009 at 1:00:19 PM
 At least he recognizes the ROOT problem why ... by shirley reese on Monday, Mar 30, 2009 at 2:08:36 PM
There are many large and even more smaller example... by nightgaunt on Monday, Mar 30, 2009 at 2:27:43 PM
I don't think I said black slaves. But if slaves d... by Allan Wayne on Monday, Mar 30, 2009 at 4:27:17 PM
I don't think that progressives should trust a... by Karen Boyette on Monday, Mar 30, 2009 at 2:52:27 PM
... progressives need to keep the high ground, and... by Gary Anderson on Monday, Mar 30, 2009 at 2:58:03 PM
writings based on knowledge of that wriers stated ... by Steven Leser on Monday, Mar 30, 2009 at 9:04:02 PM
There's something wrong with this bio ? I... by sommers on Monday, Mar 30, 2009 at 9:50:03 PM
The message I get from this article is what should... by Gary Anderson on Monday, Mar 30, 2009 at 2:54:11 PM
Gary, you said, "It's correct to assert... by Rady Ananda on Monday, Mar 30, 2009 at 5:28:54 PM
"a more extreme split would reduce revenues t... by William Whitten on Monday, Mar 30, 2009 at 6:43:05 PM
we're talking about taxing wealth, not servicing t... by Rady Ananda on Monday, Mar 30, 2009 at 7:58:51 PM
That is my point Rady, it doesn't matter who is ta... by William Whitten on Monday, Mar 30, 2009 at 11:34:58 PM
I must be one of those whiners who were previously... by Colleen De Koning on Monday, Mar 30, 2009 at 2:57:46 PM
Once you are foreclosed on, you no longer owe any ... by camanokat on Monday, Mar 30, 2009 at 8:53:42 PM
I've read a lot of good comments here, but no ... by Scott Baker on Monday, Mar 30, 2009 at 3:17:31 PM
Scott- I have no arguments about what you've writt... by Colleen De Koning on Monday, Mar 30, 2009 at 4:52:26 PM
Interesting that Mr. Roberts neglected to speak of... by E. Nelson on Monday, Mar 30, 2009 at 5:43:12 PM
Why should labor be taxed more than windfalls by t... by Clark on Monday, Mar 30, 2009 at 10:38:41 PM
I agree that we need a graduated income tax.You mu... by Dorothy Martirano on Monday, Mar 30, 2009 at 5:07:21 PM
"Same old same old Conspiracy Theory re: disp... by William Whitten on Monday, Mar 30, 2009 at 6:54:18 PM
Sorry but folksnetting 140,000 dollars per year ca... by Ron Talley on Monday, Mar 30, 2009 at 6:42:51 PM
and succinct!... by virginius "gin" arnold on Monday, Mar 30, 2009 at 6:54:10 PM
  See paragraphs 9-10 of a piece by Paul Crai... by Jane Schiff on Monday, Mar 30, 2009 at 7:53:40 PM
 Mr. M and William Whitten are nailing it! Am... by ConSion on Monday, Mar 30, 2009 at 8:04:14 PM
I agree that in some cities 250k may not be enough... by Simple Truth on Monday, Mar 30, 2009 at 8:55:35 PM
An income of $250,000 is very high in most people&... by Douglas Smyth on Monday, Mar 30, 2009 at 9:02:18 PM
clawling away. Tax the rich. The same old cro... by sommers on Monday, Mar 30, 2009 at 10:31:12 PM
Taxing each transaction does not discourage invest... by E. Nelson on Tuesday, Mar 31, 2009 at 12:19:59 AM
Don't you understand that since 1913 we've been ge... by Mr M on Tuesday, Mar 31, 2009 at 4:50:12 PM
The simple fact of the matter is that Personal Inc... by William Whitten on Monday, Mar 30, 2009 at 11:45:20 PM
Is that 250K before or after the standard deductio... by EisforEverything on Tuesday, Mar 31, 2009 at 3:04:15 AM
It all well depends on what is being done with the... by Stefan Thiesen on Tuesday, Mar 31, 2009 at 5:06:50 AM
from the US government. In many countries abroad,... by Oh on Tuesday, Mar 31, 2009 at 5:56:55 AM
I fully agree. I do not understand the philosophy ... by Stefan Thiesen on Wednesday, Apr 1, 2009 at 4:59:11 AM
I'm very much a proponent of progressive taxat... by Perry Logan on Thursday, Apr 2, 2009 at 6:00:20 AM
Ronnie Reagan flattened the tax rates and made 35%... by Julius Snow on Thursday, Apr 2, 2009 at 3:54:23 PM
I'm beginning to wonder if this article is in ... by Michael Shaw on Monday, Apr 6, 2009 at 2:53:16 PM