Obama’s Middle Class Tax Scam

Bruce Krasting's picture

Yesterday the Prez put his proposal on the table about what to do with the Fiscal Cliff the country faces at the end of the year. What Obama said is important. What he didn’t say is critical.





It should come as no surprise that Obama has proposed an extension of the Bush tax cuts for those workers earning $250,000 or less and a tax increase for those making above $250,000. The extension of the tax cut for those earning under $250k will have a cost of $150B according to the White House:



The President’s proposal appears to be “tax progressive” in that it benefits workers on the middle to lower end of incomes. The plan is clearly designed to get some votes in the key political states of Ohio and Pennsylvania. Who knows? Maybe some suckers will actually cast a vote for Obama as they think he’s standing up for those on the lower rungs of the income profile. Baloney!

What the President didn’t say in his speech yesterday is far more important than what he did say. He did not say word one about the 2% Social Security tax break that has been on the books the past few years. What this means is that the FICA tax break is going to expire. When it does, every worker’s paycheck is going to get hit by 2%.

In the 2012 Social Security Trust Fund report to Congress the Trustees estimated that total FICA (SS taxes) would amount to $733.4B in 2013. The 2% increase in FICA taxes in 2013 will increase workers tax load by $120B. Therefore the combined effect of extending the sub-250k tax cut and the increase in FICA comes to a paltry $30B.

Even worse is the way in which the increase in FICA taxes will be felt by workers making $60K or less. (The average annual wage in the US is $42,000). Households in the lower tax brackets will not get much benefit from extending the Bush tax cuts, but they will, on average, see their take home pay reduced by $1,200 a year.

The President’s tax proposal is a half-assed compromise. It is not progressive. It does nothing for the economy ($30b is chump change). If workers earning an annual income close to the average understood how this tax proposal would work out for them, they would reject it. I find it interesting that Obama is selling his plan as a middle class tax cut that aids small businessmen when in fact it is a lower-income tax increase that has no beneficial consequences to the economy.

The President’s tax plan was just a show pony to get some votes. It does not have a snow ball’s chance in hell of passing. But it is a window into the real debate that will happen after November. Some form of compromise on the fiscal cliff will have to be reached. Some taxes will go up, others will stay where they are. The net effect will be that there is no real improvement in the deficit, nor will there be any meaningful stimulus to the economy from the fiscal side.

In other words, we are going to deeper into debt, and the economy will stink. I can’t see a way around that conclusion.


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deerhunter's picture

Romney paid 7.5 million in income taxes for 10-11 tax years.  Who cares how much he made?  Paying that kind of money for 2 years of income is enough to make me puke the way that money is wasted.   It is America.  Make your dream come true and go out and make it.  How much is enough.  They also gave more than that to charity as well.  If that is not enough I would have off shore bank accounts too. 

FleaMarketPete's picture

It was confusing today, how the crowd roared during Obama’s campaign speech when he said he just wants the top 2% to pay a little more.  He obviously wasn’t talking about debt reduction.

cdskiller's picture

"The President’s tax proposal is a half-assed compromise. It is not progressive. It does nothing for the economy ($30b is chump change)."

You're right, Bruce.

"In other words, we are going to deeper into debt, and the economy will stink. I can’t see a way around that conclusion."

Right again. So, what do you propose in the way of tax policy? What Romney wants to do? I'll tell you what I would do. All the criminals who got away with financial murder over the past 15 years and then forced their losses onto the public books, doubling the debt, need to have those ill-gotten earnings clawed back. Legally, that ain't going to happen. The only available option is to tax their future earnings. Taxes on all income over $250k should be raised to 75%. Taxes on income over $1 million should be raised to 90%. Take the nation back to where it was under Eisenhower, when men were men and rich men were patriotic. All tax havens should be forced to give up their lists or attacked militarily. Take them over and take the money. All the money squirelled in the Caymans taken back by force and taxed at 90%. All these pigs who have been playing in dark pools and creating complex, leveraged derivatives to sell OTC, tell them, with the tax code, that they are not wanted here. Let them cry and try to convince their wives and children to move to the UAE, or Saudi Arabia.

Not sure where you got your figures, but according to the U.S. Census, in 2009, the median personal income was $32,184, not $41k. For women, the median personal income was $20,957. The median HOUSEHOLD income for African-Americans was $32,584.

Name a politician that is committed to helping those people, and I will try not to laugh. 

FleaMarketPete's picture

That makes no sense.  America was built on entrepreneurship and you want to kill that.  NO ONE will start a business if 90% of their labor is stolen by the government.  Even a Marxist knows that.

cdskiller's picture

Study the history of this country, for crying out loud. The top tax rate was as high as 91%, and never lower than 70% for 35 years and successful businesses were started all over the country and the middle class thrived in the greatest period of economic growth we have experienced as a nation.

damage's picture

No one actually paid that much though because the tax code was a lot different than it is now. The effective rate was never actually that high.

Eveverything's picture

But he is right about a fundamental point: both parties talk about taking American back to its golden years, typically referring to the post-war era.  Yet marginal tax rates on the highest earners were more than double then where they are now!  Is it just coincidence that the years considered to be America's best were a time when the rich were taxed at 70-90%?

FleaMarketPete's picture


So if we raise tax rates to 90% the stupid, obese, and entitled generation will get out there and start working hard?  Is that what they are waiting for? That's stupid.


q99x2's picture

Impeach Obama!

No matter how innocent a CIA agent may look when they are young--you can't judge a book by its cover.

He lies. If he opens his mouth he lies.

Eveverything's picture

Who's the last president that you think didn't lie?  William Henry "got the flu during his innauguration speech and died 40 days later" Harrison?

therearetoomanyidiots's picture

" If workers earning an annual income close to the average understood how this tax proposal would work out for them, they would reject it."


Not to worry, our media and newspapers will be sure to reveal this to 'the people".   They wouldn't let us down on something like this?   Wou...wou..would they?


The filty rich should pay more taxes. Afterwords, let them eat cake.

Eveverything's picture

Informal poll: Upvote if you're planning on voting Obama, downvote if you're planning on voting for Romney.  I know the choice of many users of this site is Ron Paul, or abstaining from voting althogether (or you're not an American citizen)- but if you absolutely had to choose one, and those two were the only candidates, which would you go for?

smiler03's picture

-1 but i'll be damned if I'm going to click on your red or green.

Eveverything's picture

Haha no black helicopters here sir/ madam, just curious how ZH alligns (seems like all Romney so far).  Personally, there are many issues with which I disagree with Obama, but I think Romney and the GOP are even further off base.

FleaMarketPete's picture

Ever since I heard BK on the radio, I'm having a hard time reading his articles without a Swiss accent.

Walt D.'s picture

There needs to be a Constutional Amendment requiring Congress abide by the laws that it passes for everyone else. There has been no budget for 4 years. What would happen to the CEO and the CFO of a publicly traded company  if they failed to pass a budget for even one year? We need a Sarbanes-Oxley that applies to Congress and the White House.

LMAOLORI's picture


Obama’s Plan for a Middle-Class Tax IncreaseObama’s Plan for a Middle-Class Tax Increase

 As for what to do after 2013, he said this:

And then next year, once the election is over, things have calmed down a little bit, based on what the American people have said and how they’ve spoken during that election, we’ll be in a good position to decide how to reform our entire tax code in a simple way that lowers rates and helps our economy grow, and brings down our deficit -- because that’s something that we’re going to have to do for the long term.

That certainly sounds to me like the president is leaving the door open to a reform that raises taxes on filers with incomes below $250,000, so long as it does so through mechanisms other than rate increases.


ATG's picture

Another good one BK.

The more the voters figure this out

and repudiate 0,

the higher the market goes..,


cougar_w's picture

Kick the can. It's all they have left.

Mr.Kowalski's picture

The Big O is toast anyways. This election will be decided in the so called "swing states"-- OH, PA, FL, NC. If you go to any of these places, the young people that lifted Big O to victory are now underemployed, over indebted with student loans and in general disillusioned-- this election they're gonna stay home. The right wingers are, however, hopping mad and will turn out in big numbers. The election of 2010 was a small taste of what's coming. 

therearetoomanyidiots's picture

Don't underestimate the idiots living in these states..."Oblunder gives me gubmint cheese - what else will I do..and he keeps me safe from tare-rists."


BTW I live in Florida.  So, don't be offended anyone.

Ned Zeppelin's picture

Dividends, capital gains, wages all should be taxed at the identical (lower) rates. 

$30B back to the sub- $250K crowd is still money back. I think this is favoring the very group it is intended to target.  

sansnobel's picture

Yeah Bruce, you are on the money.  That's the world we live in....down is up, black is white, 2+2=8.   It is the new reality.  I'm gettn'n my pistol.......

dexter_morgan's picture


Wow.....what a lot of wasted dollars there that could have went to good use by the members.

deerhunter's picture

If my people who are called by My name will humlble themselves and call unto me,  I will hear from heaven and heal their land.   Floods,  fires,  droughts,  hurricanes soon and don't forget the cherry on top of earthquakes.  We have public employees and politicians who have sold their souls for their power positions and cushy jobs and it is too late to catch the falling knife.  There are businesses locking their doors for good all over the country.  Open your eyes people.  Even restaurants are folding.  Movies and meals usually last thing to go.  Here in the Chicago area I keep an eye on the empty billboard quotient.  On a recent family trip to middle Indiana I counted no fewer than 18 billboards for the same fireworks business in N. Indiana as fireworks with any kind of bang are illegal in Illinois.  Those rented for a month max and empty soon.  We have seen a ghost and it is our own.  Get used to it.  Know your neighbors and treat them right as you may be doing recon missions with them soon enough. 

lightning's picture

All these comments got me thingking.  We all acknowledge that the government will raise taxes simply a question of when.  Yet, can anyone image a scenario where the government HAD to cut spending?  Is there any way to make this happen?  Any black swan event?  Has the governement ever cut spending?  Historically we have paid down debt, but have we ever been in the black? 

SmackDaddy's picture

Have you ever heard someone say something that you know to be true, and then they go on to explain how they reached their conclusion and you realize (despite agreement on the conclusion) that the person you are speaking with is a dumb fuck....

That was this article for me...

goforgin's picture

Your false analysis is baloney! Ah, on the one hand you present arguments that show how Social Security is already turning red ahead of the projected dates sometime in the future while concealing the temporary 33% tax in SS taxes collected in your analysis.

You paint the picture with statistical lies in which ever way you want. The fact is that Bushes tax cuts have nothing to do with ending temporary Social Security tax cuts.




Roandavid's picture

Thet are now Obama's tax cuts despite his protestations.

diogeneslaertius's picture

Barry Soetoro, Ford Foundation Manchurian Puppet at your service NWO


they literally sat down in the late 50's and said, "yeah, this grooming stables of blue bloods for the POTUS etc. is great and all, but what if we could Manufacture a President?"

mrdenis's picture

never you mind Sweet Pea ....Obame will take care of ya'

PulpCutter's picture

Krasting is full of shit.

It's disingenuous to pretend the middle/lower income tax cut is the same as the FICA tax cut, and combine them as ONE tax, just so you can call Obama a liar. 

The FICA tax cut was always temporary, and is a separate issue.  What Obama is proposing is to extend the Bush tax cuts for those under 250K/year, and put those above that income back to their tax level in the Clinton years.

Anyone who falls for Krasting's simplistic bullshit is an idiot.



Walt D.'s picture

Nobody is getting a tax cut. The middle clas taxes stay the same. Not raising someone's taxes is not a tax cut. This is congressional double talk, like reducing a built in 8% increase to 5% on someting is a cut.


goodrich4bk's picture

Pulpcutter is factually correct, so I don't quite understand the negative votes.  Perhaps if the more mathematically challenged heard it another way you'd understand:

If Obama does nothing by Jan 1, we reach the so-called "fiscal cliff" and all tax cuts expire.  In that case, those middle and lower class workers would see only tax increases, not tax cuts.  This is a result that both Dems and Repubs voted for and, frankly, one I support because it actually reduces government expenditures.  A tax cut --- or an extension of a previous tax cut --- only passes the bill to my kids and I don't think that is moral unless the debt is used to pay for productivity increasing capital improvements or emergency militiary needs.  Obviously, food stamps, corporate tax subsidies, Solyndra and war preparations do not fit either of those exceptions.

Now, if Republicans get what they want, the government gets less revenue (how much less is debatable) and those unpaid taxes are merely deferred to be paid by our kids with interest.  In other words, not increasing taxes does not avoid the payment of taxes.  It just shifts payment to taxpayers in later years.  If you're 85 you might think that's a wonderful idea, in which case I say fuck you.

If Obama gets what he wants, and Bruce's numbers are correct, the lower and middle class taxpayers save maybe $30 billion and the top 5% pay 4.6% more.  Not a particularly radical proposal.  It passes a smaller bill to our kids and asks today's wealth --- the ones who have benefited the most from the government's manipulation of the financial markets --- to make up most of the difference.

Finally, and just to be clear, the best idea is Ron Paul's: just stop spending.  But I don't see any proposal on that, particularly from the only place where spending bills can start, the House.  So please don't bother telling me that is a solution until Paul is sitting in the Whitehouse.

unemployed's picture

That 2 percent FICA cut replaced a 400 dollar worker give back,  with the result the FICA breakers got a 2,000 tax break,  prime red voter country.   Meanwhile the underemployed get to pay same old taxes on whatever inocme stream they are getting.   This was a glimmer of the "wait a second,  we are paying out too many bucks to social security, federal pensions,  military pensions etc"  firedrill,  with a nationwide VAT sitting in the wings.   Romney paid what?,   13 percent income tax rate,  and wrote off 73,000 in dressage "expense".   Well ole Obama "care" will at least add a 3.5 percent? added tax to that to the FICA tax dodgers. 

jomama's picture

might have something to do with the disrespectful way of addressing the author- one that's highly respected in this community and contributes a great deal of good discussion on a regular basis?  

just sayin'.

Walt D.'s picture

When Obama says the middle class are going to get a tax cut, most people think they will be keeping more of their pay check. In fact, with the FICA hike, they will be seeing $100 less. 

If it looks like a tax hike, waddles like tax hike and quacks like a tax hike, it's a tax hike.

Bob's picture

I'd say inspired idiot.  Making more than $250k seems to be very inspiring. 

Makes you care about all the poor "little guys." 

[wipes tears from eyes]

God bless the job creators!

machineh's picture

What's disingenuous is for the same government to impose two different tax regimes, then trumpet a cut in one of them while remaining silent about an increase in the other one.

This is absolutely standard fare in politics. In the state I live, where municipal elections are on a two-year cycle, property taxes get hiked dramatically in the year after the election.

Then in the election year, taxes stay almost flat, and politicians congratulate themselves for 'holding the line on taxes.' It's a dirty shell game, calculated to deceive the casual observer.

monad's picture

Read my teleprompter: No New Taxes!

Walt D.'s picture

This is just an election year gimick, designed to decieve the gullible, lazy and greedy into thinking they are going to get something for nothing - again (they did not learn from last time).

As with most economic phenomena, there are two aspects - what is seen and what is not seen.

What will be seen:

1) The $150 billion expected increase in revenue will be much less than expected.

2) The expected $150 billion will be spent or committed before it comes in.

3) More people will end up on unemployment and food stamps - this cost was ignored in the analysis.

4) Some companies will move all or part of their operations offshore - again, this was ignored.

What will happen (but not be seen):

1) Asian graduate entrepreneurs not starting their new businesses in the US and instead going elsewhere.

2) New businesses not starting up in the US.

3) Existing businesses not expanding in the US.

Fortunately for Obama, the Republicans are too lame to understand this or articulate it to the electorate.

As Bruce said, the average income worker will see $100 a month disappearing out of his/her pay check. The Republicans should be repeating this like a mantra.



spooz's picture

Republicans, huh?  So more of the same trickle down crap? Thats the solution?

rwe2late's picture

 Another scenario is that the "Bush" tax cuts will NOT be extended,

and the Dems and Repubs will blame each other for a tax increase that they both pretend not to want.

Also, the SS tax will increase.

Meantime, the endemic corruption of the financial and military sectors will continue to debilitate and  economically destroy society allegedly in order to save it.

spooz's picture

the only way it passes is if he extends the taxbreak to the 1% as well.  nothing gets done that has any impact on the growing inequality in the us as long as the 1% own our government.

Hedgetard55's picture

Ben is herding savers into high risk investments trying to chase yield. Bruce is right, this will come back to vaporize them.

crawldaddy's picture

NO ONE hires and/or fires based on a fucking tax rates in the real world.  Its just ludicrous.  Demand for your service or product dictates hiring PERIOD.  LArge corps may play around trying to fuck around with people and tax rates BUT big corps arent the people who hire in this ocuntry. SMALL BUSINESS is.


Roandavid's picture


After tax returns are always an issue at small businesses.  Companies I have owned have passed on both low margin employees and business after having gone through all the numbers and come to the conclusion that at the given costs of additional employees and/or the potential after tax profit for some project or piece of business, it just wasn't worth the wear and tear.  

Every small business that has made it past incubation has done this drill and many if not most have made similiar decisions.

When I see comments like yours crawldaddy, I know for a fact that you have never operated a small business in the real world.  At least succesfully.


robobbob's picture

what are you? a phd economist?

perhaps you are not acquainted with operating a real life business?

or something known as the supply/demand curve?

everything is about input costs

except for life sustaining necessities, the higher the price, the lower the demand. you don't think all those businesses and workers will willingly eat any cost increases? or customers will be willing and able to spend more rather than cut consumption?

Henry Hub's picture

***the higher the price, the lower the demand***


I'm afraid it's not as simple as that. The prices for some goods and services are elastic, some are inelastic. And the other poster is correct. If the demand for your product is increasing you will hire more workers to meet production demands, if it's isn't you won't. Taxes and regulations are a marginal consideration.