A Washington Post report that Americans paid the lowest tax rates in 30 years in 2009 seems to be portraying President Obama as a proponent of cutting taxes: 

Americans paid the lowest tax rates in 30 years to the federal government in 2009, in part because of tax cuts President Obama sought to combat the Great Recession, congressional budget analysts said Tuesday.

Of course, this may be a very convenient explanation, what with the president calling for a tax hike on the wealthy, presented as a tax break for the middle class, just now. But the next sentence makes clear what really happened:  

A sharp decline in income — especially among the wealthiest Americans, who pay the highest tax rates — also played a role, according to the report by the nonpartisan Congressional Budget Office. Household income fell 12 percent on average from 2007 to 2009, with income among the top 1 percent of earners decreasing by more than a third.

This Must Be Spun:

Still, at the very moment anti-tax protesters were emerging as the most powerful force in American politics, handing Republicans landslide control of the U.S. House, the data show that people were sending the smallest portion of their income to the federal government since 1979.

According to the story, President Obama’s “signature” Making Work Pay tax credit was a big factor in the lower tax rates of 2009. Let Timothy Geitner's accountant explain how the credit worked:

The Making Work Pay credit was just one piece of the American Recovery and Reinvestment Act of 2009. What made it popular with tax fliers was that it was a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers (provided that filed jointly).

Tax credits are important because they directly reduce your tax liability. Most tax credits we’re familiar with, like the earned income tax credit or the lifetime learning credit taken as we file our taxes and meet the qualifications.

However with this credit, changes were made to the federal income tax withholding tables.  Many workers saw this tax credit reflected as an increase in their paychecks through the year. (Self-employed workers could claim this credit when they filed their taxes.) It was meant to be a micro-stimulus for families as the United States government was hoping households would spend more.

Let’s just say that this was a very micro stimulus! Nor were anti-tax protesters misguided, as the story seems to imply. People were still paying too much tax on what they earned; but because they were earning less, thanks to the lousy state of the economy, they often fell into a lower tax bracket. Less income, lower taxes. But it did not mean that the burden was less onerous.

Takeaway: prosperity is what generates tax revenue. The report did quote a Republican who made this point:

Michelle Dimarob, spokeswoman for Ways and Means Chairman Dave Camp (R-Mich.), countered: “Under President Obama and the Democrats who control Washington, Americans have lost their jobs, seen their wages decline and fallen into lower tax brackets. A weak economy and fewer jobs is nothing to cheer about.”   

The astonishing factoid in the article is not that the Making Work Pay credit was such a huge success—all $400 to $800 a year of it (wahoo!)—but that the income among the top one percent decreased by a third: this is obviously huge.

This is the much-maligned one percent the president is always denigrating as he asks Congress to make them pay the bill for just about everything. What this story indicates is that the United States may be running out of rich people who can create jobs and pay taxes–and, of course, against whom the president can wage class warfare.

Margaret Thatcher once complained that the problem with socialism is that eventually you run out of other people’s money.

The problem with years and years of a lousy economy, is that you run out of rich people.