The Debunker: Millionaires and billionaires

Having spent the last three years palling around with billionaires like George Soros, Warren Buffett, and Bill Gates, while presiding over a “recovery” in which the rich get richer while the poor get poorer, President Barack Obama is now scrambling to recover his credibility with voters.

To do so, he has opted for demagogic tactics and class-war rhetoric, endlessly pretending that he wants to raise taxes only on “millionaires and billionaires.” His plan, however, would actually raise taxes on every family making at least $250,000 (about 2 percent of households) and every individual making at least $200,000 annually (more than 3 percent of all returns as of 2008). Obama claims that excluding these people — huge numbers of them small businessmen — from the extension of the Bush tax cuts will force them to “pay their fair share.”


There is no evidence that tax rate cuts reduce the share of total income taxes paid by high-income people. (See table.) When Bush cut the top marginal rate by 3.5 percentage points, the share of the total income tax burden borne by the top one percent (those who earned more than $343,947 annually, as of 2009) actually increased by 6.5 percentage points by 2007. Indeed, every reduction in the top marginal rate has increased the share of income taxes paid by high earners.

Changes in top marginal tax rates and tax shares of the rich*
(Percentage points)

Change in top marginal income tax rate Change in income tax share of wealthy
Coolidge-Harding tax cuts (1920-28) -52 +38.4
Kennedy-Johnson tax cuts (1963-66) -21 +3.9
Reagan tax cuts (1981-88) -42 +10
Bush tax cuts (2001-2007) -3.5 +6.53

Source: Internal Revenue Service. Statistics of Income. Tax Stats – Historical Table 23; 1920 (p. 5), 1928 (p. 5), 1963 (Page 29, Table 1); 1966 (Page 6, Table 1); 1981 (Page 36, Table 1.1); 1988 (Page 20, Table 1.1); Number of Returns, Shares of AGI and Total Income Tax, and Average Tax Rates, 1996-2009 (Table 2); Tax Foundation. Fiscal Fact No. 285. October 24, 2011. (Table 6).

*For the Reagan and Bush tax cuts, “rich” is defined as the top one percent of taxpayers in terms of Adjusted Gross Income (AGI). For the Coolidge-Harding and Kennedy-Johnson tax cuts (before the IRS began identifying the top one percent), “rich” is defined as those with AGI of $500,000 or more.

It’s hard to believe that the smartest President ever is ignorant of these basic facts of U.S. economic history, but the alternative is that he knows better, and is going ahead anyway, for reasons unknown.

Although Obama took record campaign contributions from Wall Street, once elected, he denounced his donors as “fat cat bankers.” But in terms of results, his actions belie his rhetoric. For all his “Occupy Wall Street” attacks on the “top one percent,” that is precisely who has benefited most from his bail-outs, subsidies and “stimulus.”

According to progressive Berkeley economist Emmanuel Saez, fully 93 percent of the income gains made during the Obama “recovery” in 2010 went to the despised top one percent, while the other 99 percent of Americans have seen only a 0.2 percent growth in real income. This is a far worse performance than the much-maligned Bush, under whom the top one percent garnered only 65 percent of the income gains during the 2002-2007 expansion, while the bottom 99 percent saw real income grow by 6.8 percent. In other words, Obama’s recovery has been 43 percent better for the top one percent than the Bush expansion, while the Bush expansion was 34 times better than Obama’s recovery for the bottom 99 percent.