Economics

Actually, Obama is proposing raising taxes on the middle class

President Obama says he only wants to raise taxes on American households making over $250,000. But his new budget plan would hit middle-income folks pretty hard. See, the White House wants to raise the corporate tax burden by some $350 billion over ten years: a) $148 billion from reforming the U.S. international tax system, b) $19 billion from new financial taxes, c) $30 billion from ending fossil fuel tax breaks, and d) $142 billion from other “revenue changes and loophole closers” like changing how investment managers are taxed.

But corporations don’t pay taxes. Their shareholders and workers do. As AEI’s Aparna Mathur explains:

Simply put, when taxes are imposed on a corporation, wages are lowered not only for the workers in that firm, but for all workers in the economy since otherwise competition would drive workers away from the low-wage firms. As a result, a $1 corporate income tax on a firm could lead to a $1 loss in wages for workers in that firm, but could also lead to more than a $1 loss overall when we look at the lower wages across all workers.

Following our paper, several academic economists substantiated our results, using different data sets and applying varied econometric modeling and techniques. … A recent Tax Notes article that I co-authored summarizes these various studies and also the lessons from the theoretical literature on the topic. The general consensus from theory and empirical work is that while we may argue academically about the size of the effect, there is no disagreement among economists that a sizeable burden of the corporate income tax is disproportionately felt by working Americans. On average, a $1 increase in corporate tax revenues could lead to a dollar or more decline in the wage bill.

Mitt Romney was dead on when he said “everything corporations earn ultimately goes to people.” And if Obama should get his way, those people, including workers, will be getting a lot less.

2 thoughts on “Actually, Obama is proposing raising taxes on the middle class

  1. Once again, you’re both right and wrong. Right on substance and wrong on perception… and guess which is more important?

    People don’t think they pay for corporate taxes. The same holds for other costs that are ‘paid’ for by someone else whether it be the costs of excessive regulation, health cost mandates or so on. We don’t think we’re going to benefit if corporate taxes go down, it isn’t as if we think corporate America is going to raise our wages if taxes are cut. We don’t see ourselves getting a raise if our employers aren’t forced to provide coverage for X or Y. We don’t connect the dots, we view what is done to corporations (or, for that matter, rich folks) as independent of what happens to us.

    Thus, Obama isn’t raising taxes on the middle class. And when we hear someone claim otherwise, we tune them out. You can cite all the statistics and studies you want, but we’ve already moved on.

    Keep in mind that if one needs an understanding of economics to follow your argument, you’re better off trying a different approach. Obama understands this… which is why he has more than a fair chance of being re-elected.

  2. Obama DOESN’T understand Economics. Yes, he has economic advisers, who tell him what he wants to hear. If you want to grasp more about this ” tax reform “, read what disinterested economists have to say.

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