Sunday, August 2, 2009

Exempting the Middle Class

One of the Obama Administration themes has been that the "middle class will not be burdened" by the trillions of additional spending in the Obama legislative program. Larry Summers, who once laid claim to being an economist, repeated that silly mantra today. Geithner opined on Meet the Press that further tax increases, beyond the enormous mountain of those already in the agenda, are under consideration. Somehow, the "rich" will be the only ones effected.

Lets think about that for a moment: The 8 percent tax on business on total payroll to fund part of the "health care" bill...who pays that one? A $ 40,000 employee expense now costs another $ 3,200 per year. Who do you think pays that? Does the employer say: 'Oh, okay, it used to cost $ 40,000 and now its costs $ 43,200 but I am going to act as if it still costs $ 40,000." Is that what an employer thinks? (That's what Obama thinks he thinks. "After all, that's what all my law buddies at Starbucks think," says he.).

No. The employer says: "Hmm the cost of having employees has gone up by $ 3,200. If I am going to hire another employee I will have to adjust the new wage down to $ 36,800 so that the total cost remains at $ 40,000." That's what happens in the real world, as opposed to the Obama-Summers make believe world. The employee ends up, over time, absorbing the entire cost of the mandate. An employer does not give a whit about how the cost is distributed. All an employer cares about is the total cost per employee. Government mandates are always absorbed ultimately by the employee, not the employer.

So, when Summers says, the middle class will be unaffected, he must mean that no employees are in the middle class. Wonder how he defines the middle class?

It is not possible to raise any serious revenue by not taxing the middle class. Tax rates in the US on the middle class are already enormous. Don't forget the 15 percent payroll tax. That is paid by the employee not the employer because the employer simply reduces his offer to the employee to offset the cost of the payroll tax. The middle class is soaked by federal taxes on cigarettes on oil and gas that we consume on corporate income taxes on the stocks held in our retirement accounts. The taxes on the middle class are monstrous and heading higher.

You cannot provide cradle-to-grave entitlements without: 1) destroying individual incentives for people to provide for themselves; 2) creating a huge tax on future generations; 3) beggaring the middle class; 4) creating economic stagnation.

The middle class is not exempt from the Obama nightmare. They are its main victim.

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