President Obama told voters in 2012 that the economy was turning around and that was a reason to stick with him. We’re still waiting, Mr. President.
Former Arizona senator Joh Kyl, now at the American Enterprise Institute, and economist Stephen Moore explain what has gone wrong in a piece in today’s Wall Street Journal:
The curse of the U.S. economy today is the downward trend in “take-home pay.” This is the most crucial economic indicator for most Americans, but when President Obama said in a recent speech at Northwestern that nearly every economic measure shows improvement from five years ago, he conspicuously left this one out.
Most workers’ pay has not kept up with inflation for at least six years. Even as hiring picked up over the past year, wages and salaries have inched up by 2%, barely ahead of inflation. This probably explains why half of Americans say the recession never ended. They are experiencing what Federal Reserve Chair Janet Yellen last week described as “stagnant living standards for the majority.”
The piece, which is headlined “Obama Soaks the Rich, Drowns the Middle Class,” offers reasons why take-home page is stagnant. One is that jobs added since the end of the recession don’t pay as well as they jobs they are replacing and the second is that ObamaCare ensures that insurance takes a bigger bite out of paychecks.
But, according to Kyle and Moore, an overlooked factor is President Obama’s tax increases on “the rich” beginning in 2013. But taxes on the rich aren’t supposed to hurt the rest of us? I mean, isn’t class warfare a Good Thing? The authors explain:
How could higher taxes on the top 2% or 3% hurt the middle class? Part of the answer is that when upper-income Americans spend their money on vacations or cars, they are taxed only once, after they earn it. But if they put their money to work by, for example, building out a family business, they got socked a second time by higher investment taxes. And this discourages the investments that grow the economy.
Although the Obama administration argues otherwise, these tax hikes were not minor. The tax rate on capital gains for high-income earners shot up to 23.8%—20% plus the 3.8% ObamaCare investment surtax. Ditto for the tax on dividends. So taxes on business investment rose by nearly 60% in 2013 and are nearly 20% higher than in the Clinton years.
For estates more than $5.3 million in value, the estate tax in 2013 rose to 40% from 35% in 2012. This tax is a confiscatory double tax on a lifetime of savings, and the money reinvested in stocks or a family business.
The overall effect of the 2013 tax hike was not minor. The highest income-tax rate on small business income has risen to almost 42% from 35%. That’s a 20% spike in the small business tax for successful companies. When the government takes more, there is less to plow back into the business or invest elsewhere.
This may help explain the paradox that even as American businesses today are generally efficient and highly profitable, they aren’t reinvesting in new plants, equipment and technology or hiring more workers at the pace they normally would. Business investment was up last quarter—a hopeful sign—but over the recovery the trend has been sluggish.
Investment and take-home pay of ordinary workers are related, as Kyle and Moore explain. They quote economist Paul Samuelson–a Keynsian–arguing that the wage rate goes up when the worker has more capital to work with and is thus more productive. Wages are then bidded up. Kyle notes an AEI study that found that a 1 percent increase in corporate tax rates is associated with the same drop in wages.
Like the “war on women” the president’s class warfare was built on phony premises.
Unfortunately, it is middle class workers who must pick up the tab for the president’s economic confusion and ill will against corporations.