Thursday, April 5, 2012

The Tax Hike Election of 2012

Obama and the Democrats think the promise of higher taxes will be a winner for them this year.

Barack Obama was a very effective candidate for president in 2007 and 2008. He was not very good at actually being president. So it was understandable when about one year ago Obama quit trying to be president and once again focused on campaigning for president. He returned to his comfort zone.

It was one of the shorter presidencies. Not quite William Henry Harrison territory, but closer to a congressional term. His campaign for re-election will last longer than his 2009 and 2010 effort to fill the chair behind the Resolute desk.

The yearlong drama in 2011 over the debt ceiling increase, the 2012 State of the Union address, and the Obama administration's "budgets" were not about governing. They were campaign slogans. Longer versions of "hope and change."

Traditionally, politicians of the left have worked to focus the electorate on the benefits of more government spending, all while making every effort to hide the costs of that spending—higher taxes—by placing tax increases as far from voters' minds and Election Day as possible. Many governors campaign promising not to raise taxes and then do just that early in their terms, so as to have the tax hike four years distant when re-election rolls around. This was President Clinton's strategy when he raised taxes in 1993 and then spent the swag through the 1996 election.

It was always a pleasant fantasy for conservatives that, by moving Election Day to April 15 or tax day to the first Tuesday in November, they could force Americans to notice the actual costs of government over the siren song of "free" programs. Illinois congressman Phil Crane regularly introduced legislation to do just this.

Barack Obama appeared to be following the traditional strategy, separating the pain of taxes from the political joys of spending, when the Democrats passed Obamacare in March 2010. Most of the taxes to pay for it do not kick in until after the upcoming election.

It was Obama's foul luck that Americans decided to hold their first negative referendum on government spending in 2010. Tea Party–reinforced Republican voters did not wait for the coming higher taxes to punish Obama, Reid, and Pelosi.

But the delayed Obamacare taxes are just one in a bevy of hikes on the horizon. Without congressional action, the 2001 and 2003 Bush-era tax cuts will expire at the end of the year, and the Alternative Minimum Tax "patch," the research and development tax credit, and the second annual FICA tax holiday will all lapse. If Obama is re-elected, he can simply veto any Republican effort to extend these tax cuts, and on January 1, 2013, the marriage penalty returns, the capital gains tax jumps from 15 to 23.8 percent, the tax on dividends rises from 15 to 43.4 percent, the top individual tax rate increases from 35 to 43.4 percent (Clinton's 39.6 percent plus the Obamacare tax of 3.8 percent), the Social Security payroll tax paid directly by workers jumps from 4.2 percent to 6.2 percent, and the death tax jumps from 35 percent to 55 percent on lifetime savings greater than $1 million (not today's $10 million exemption). The end of the Alternative Minimum Tax patch means the tax, enacted in 1969 to punish 155 rich Americans, will instead hit 30 million families.

A re-elected Obama could raise taxes by $500 billion in 2013 and $5 trillion over the decade simply by vetoing Republican efforts to extend or make permanent today's lower rates.

This makes the 2012 election about taxes: big time.

THE DEMOCRATIC PARTY—which swore it learned its lesson on taxes in 1978, when the tsunami of tax revolts began in California with Proposition 13; and then again when the unthinkable happened, and Ronald Reagan won the presidency in 1980 campaigning on supply-side tax-rate reduction; and then again in 1984, when Walter Mondale inexplicably lost the presidency after he announced at the party's convention that he would raise taxes; and again when George Bush won in 1988 simply stating "No new taxes"; and again in 1994 when Clinton's tax hikes brought the first Republican House and Senate since 1952; and again in 2000 when even George W. Bush, promising lower taxes, defeated candidate-for-life Al Gore—this same party has now convinced itself that focusing on taxation, specifically promising to raise taxes on the rich, is a vote-winning strategy.

Senator Charles Schumer (D-NY), who spent 2008 promising Wall Street that despite everything Obama said, Schumer would never really let the capital gains tax increase, has now announced his belief that, "The tax issue, for the first time in decades, has flipped so Democrats actually have the high ground."

The Democrats just spent 2010 losing control of the House of Representatives, and losing six races for Senate, six for governor, and 711 for state legislator in reaction to their higher levels of government spending.

Scott Rasmussen, co-founder of ESPN and now president of Rasmussen Reports, has been polling these issues for 18 years and recently published The People's Money, a book on how Americans view government spending and taxation. His data suggest the Democrats have chosen "unwisely."

In April 2011, Rasmussen found that 64 percent of Americans believed the U.S. was "overtaxed." Gallup and Harris polling from 1996 to 2006 asked Americans if their own federal tax payment was too high, about right, or too low. An average of more than 60 percent said "too high." Usually just 1 or 2 percent said "too low," though that figure spiked in 2004 to all of 3 percent.

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