It is difficult, as you can imagine, to be a small business owner who feels like, at least lately, I am walking around with a target on my back.
If I had to say that President Obama’s news conference last week had an overall theme, it would be that our nearly $15 trillion budget deficit can be reduced if we simply go after the big, bad, jet-setting millionaires and billionaires.
As much as I try to stay impartial to the political environment, I was pretty disappointed in the tone of that speech. Here we are with record debt and, instead of coming together to find a solution, we’re still throwing mud at each other.
On Wednesday, the President stated, “The tax cuts I’m proposing we get rid of are tax breaks for millionaires and billionaires, tax breaks for oil companies and hedge fund managers and corporate jet owners…Before we ask our seniors to pay more for health care, before we cut our children’s education, before we sacrifice our commitment to the research and innovation that will help create more jobs in the economy, I think it’s only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys.”
On Thursday, The Washington Post Fact Checker rated Obama’s speech with Two Pinocchio’s. This means that there were significant omissions and/or exaggerations and some factual error may be involved. For starters, we need to cut 2 to 4 trillion dollars in the next 10 years. However, the supposed jet tax break would only cover $3 billion. Under this plan, we would still have 99.9% to go after 10 years! Essentially, this change would be like dropping a penny in an ocean.
Furthermore, while the idea is to target “millionaires and billionaires”, the fine print of the current proposal would actually affect couples making more than $250,000, 61% of which is generated from salary and wages.
One research piece that we pulled shows that raising the highest tax rate of 35% to 42% would only generate $43.5 billion of the $1,665 billion annual deficit. Raising it to 100% wouldn’t even cover the gap. We would bring in an additional $404.8 billion but still be $1,260 billion in the hole for the year. This article also points out that the American economy is driven by consumer spending which represents nearly 70% of overall economic activity. The top 5% of wage earners account for 37% of all consumer spending and pay 58.7% of all income tax revenue. We are increasing the taxes on the very people that we need for an economic recovery.
One of my favorite books,The Millionaire Next Door: Surprising Secrets of America’s Wealthy
Dr. Stanley lists Seven Factors of a Millionaire:
- They live well below their means.
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
- They believe that financial independence is more important than displaying high social status.
- Their parents did not provide economic outpatient care.
- Their adult children are economically self-sufficient.
- They are proficient in targeting market opportunities.
- They chose the right occupation.
As we go through the show, we share some other data relating to the proposed tax increases circulating in Washington right now. We also explore some of Dr. Stanley’s blog topics and how, without introducing any sort of partisanship, he clearly explains that the solutions our leaders are suggesting may actually serve to worsen our current economic situation. As always, we love to hear your thoughts and opinions on these type of topic so please feel free to share below and on our Facebook page.
Adam Cmejla says
July 8, 2011 at 6:58 pmBrian, ‘so glad that you’re coving this topic!! I couldn’t agree with you more and as someone that’s grown up in a small business household, it’s not like success just fell into our lap. It required Mom and Dad to work nights, weekends…sacrificing time away from family to build a business. As the phrase goes…”we lived like no one else so later we could live like no one else.”
The ignorant and blatantly false statements made by our President are extremely disappointing, and the numbers back it up even more!! In an era when we need strong, fundamental political leadership, it’s disheartening to see someone like our president ignore the facts and “spin it” just for political collateral. It seems like we’re never going to make progress in Washington; we’re always going to be fighting the donkey-elephant battle and it’s (quite frankly) become exhausting as a constituent and tax-paying American.
Keep up the good work (and keep the Advisor Skills podcasts coming…they’re great! Cheryl and yourself have great chemistry and perspectives!!).
Peter says
July 9, 2011 at 6:05 amI haven’t listened to the show yet, but based on this description, I will say, as I have said before, that some sort of tax increase needs to be part of a multi-pronged approach to dealing with our crushing debt. Brian likes to point out that we will not be able to balance the budget with tax increases alone. I will suggest that we will not be able to do it with spending cuts alone either. We need to do both. And the spending cuts can’t come from the tiny non-military, discretionary part of the budget either. We need to cut spending on defense, Social Security, Medicare and other entitlements. There was a show a few years ago where Brian commented on the “IOUSA” documentary and how it clearly showed the unsustainable growth of these entitlement programs. At the time Brian seemed to fully advocate reigning in these programs to deal with the debt. I don’t know what has changed, but now he rarely seems to mention that part of the debt issue.
If he is willing to take away refundable tax credits from low income taxpayers (which is essentially a tax increase for those people) I fail to understand why he refuses to accept a tax increase on very, very high income taxpayers. He mentions that we shouldn’t increase taxes on high income earners because they contribute to consumer spending. Well, I can assure you that low income taxpayers contribute to consumer spending too, and they spend a much higher percentage of their income on consumer goods. I can also assure you that if you gave someone making $20,000 a year, an extra $500 they would use it to contribute to some type of consumer spending. However, if you gave someone making $2,000,000 a year (100 times more) an extra $50,000 (100 times more) I don’t think it is in any way clear that they are going to spend that money. Many studies have shown that when the really, really wealthy get tax cuts or get extra “found” money, they often save or invest it, they don’t spend it on consumer goods. They already have all the consumer spending basics covered.
Maybe all we are arguing about here is the income level that a tax increase would kick in. If Brian doesn’t want a tax increase to kick in at $250,000, would he accept one at $500,000, $1 million, $5 million? At some level you have to believe that someone making (for example) $2 million a year isn’t going to have their lifestyle affected that much by a 2 or 3% tax increase.
The only way we are going to make real progress on dealing with the debt is with a combination of military and entitlement spending cuts AND tax increases.
Robinson Mertilus says
July 9, 2011 at 8:34 amThanks for the podcast and blog post, Brian. I haven’t yet listened to this podcast, I plan to today, but I did read the blog post.
This highlights the problem of class warfare. It is yet another attempt by the Obama administration to give us a false choice of starving grandmothers and fat cat millionaires. The problem is that no one wins, the deficit will not have been reduced because the “tax savings” will flow right into the general fund to spend on more vote-getting initiatives (entitlements, “green” projects or funding for fill in the blank program that needs just one more billionaire dollars to be successful). Additionally, there will not be a genuine tax savings, at least not in the long term, because behavior will be modified. You can blindside small business owners in the first couple years of higher taxes, but they eventually discuss tax avoidance strategies with their CPA’s (resulting in less revenue to government), cut expenses (lower pay to less skilled labor), incrementally raise prices (inflation) or avoid taking risk (less capital gains tax revenue) and the list goes on.
But to be fair, let’s suppose they do cut their pay or forgo the next yacht purchase, how does that benefit children’s education? Suppose the child’s father is a laborer at large yacht manufacturer or manufacturers component parts in the yacht industry, what happens to him? Why can’t we think beyond stage one (as discussed by Thomas Sowell in Applied Economics). What happens after you take food out of the rich man’s grocery basket after he checks out? Does he get back in line to make the same purchase only to have it taken again. Is he selfish because you intend to give his food to a poor woman? The consequences have much more impact whether they are seen or unseen. I’m not participating in class warfare. I say to everyone, make as much money as you legally can. Give, save and invest it how you choose.
Thanks for discussing this topic.
linda albers says
July 9, 2011 at 10:15 amCongratulations on the “Jet Owners …… Myths” podcast. I hope you will not be criticized for focusing on the economy and its shaky future. We all need to be alert to threats to the economic health of the country and to speak out against them. Thank you for arming us with these facts. Give us more. We are listening. …….Linda
David Cohen says
July 10, 2011 at 10:48 amI have some issues with your arguments against the President’s argument for closing loop holes.
1. I believe in less loopholes and corporate funding in the tax system, so even if it only pays for .0001 percent of the national deficit, I am for using that tool.
2. You used a calculation of if we taxed 50% of the top tax bracket or even 100%. Yet, you have taught in your previous podcasts that income tax is a progressive tax. So if someone is making 250K and their tax bracket is 50%, I thought it wouldn’t be 50% for the whole 250K. If true, your argument seems misleading.
3. Isn’t what the President is proposing really rolling away with the Bush tax cuts? It doesn’t seem like the cuts are helping the economy yet, and how many years have they been in place.
4. You talked a lot about net worth instead of income. Yes, according to the Millionaire Next Door (love the book) most Millionaires live among us and are good at savings. But how many of them put down $250,000+ on their income and how many are like me… struggling to save so that by the time I’m in my 50s I am a Millionaire? I don’t have the facts. But I’m guessing most of the Millionaires next door are so through businesses, properties, savings, RIRAs and may not be in that top bracket.
5. I know there was a group of people who earn more than 1M a year that has even formed to ask congress to raise the taxes on their own income. Should there be one more tax bracket?
Everyone should try to earn and benefit their families as much as they possibly can. I know I work very hard to do the same and hope to get to 250K a year. I also am in favor of cutting the size of government like the republicans want to do. And I love your show. But I just felt that your argument was too one sided and had problems with some of your arguments.
David
Peter says
July 12, 2011 at 3:33 pmI listened to the podcast today and it was a little disappointing, probably because it wasn’t a typical Money-Guy show. It was heavy on Brian’s Republican/Libertarian belief that fewer taxes on the rich will solve everything, and very light on any real suggestions for dealing with the deficit except that increasing taxes on the rich is NOT the way to do it.
A few comments:
1 – Brian repeatedly says that closing some of these loopholes or raising taxes a little is like “throwing a coin in the ocean” because it will only take us a tiny way there to closing the budget gap. That is true but that doesn’t mean they aren’t worth doing. There isn’t going to be any single method, cut or tax increase that is going to do even 50% of the job. Dealing with the deficit needs to be a multi-pronged effort on both the spending and taxation side. I’m sure there is a government spending program Brian would love to cut even though it would only save $2 million a year, which is also just “a coin in the ocean.” A little here, a little there and eventually it adds up to real money. As he says in the show, when clients ask him if they are ready to retire, he gets a detailed spending sheet from them and makes suggestions. I guarantee you he is making suggestions to cut $20 here, $50 there rather than saying you should sell your car and walk everywhere to save $500/month in car payments. Expecting any single tax increase or spending cut to make a large dent in the deficit is unrealistic.
2 – Brian repeatedly says the top 5% of tax payers pay 58% of the tax revenue as if they are taking on a disproportionally huge burden by paying so much tax. The part he conveniently leaves out is that those 5% are earning close to 50% of the income, so it makes perfect sense that roughly half the income would generate roughly half the tax. While not explicitly stating it, Brian seems to be suggesting that those 5% of tax payers are paying an unfairly high amount and/or percentage of their income in taxes. In fact the nominal tax rate peaks in the $1.5 – $2 million bracket and then goes down. So everyone earning more than $5 million is actually paying a smaller percentage of their income in taxes that someone earning $500,000 – $1 million.
3 – The implied suggestion that we can’t/shouldn’t do anything to negatively affect this top 5% because they are responsible for keeping the economy afloat is dubious at best. I find it hard to believe that a mere 5% of the country is responsible for the economic welfare of all 300 million of us and the other 95% of us are just along for the ride. The rest of us contribute greatly to the economic growth of this country because while each person is spending less, there are a much, much larger number of us. If a low income taxpayer gets a tax cut or otherwise has “found money” they are virtually guaranteed to put that money into the economy immediately by buying needed goods and services. A very wealthy taxpayer already has the bulk of their needs covered and is far less likely to put that money into the economy. They are far more likely to save or invest it since all their day-to-day living expenses are taken care of.
4 – While the bulk of the bashing was directed towards President Obama, let’s not pretend that members of both parties are not using the deficit to push their own political agendas. Both Democrats and Republicans have strong opinions on the way to handle the deficit and both parties make comments about spending and taxation that are less than 100% accurate. It is unfair to single out one speech by the President as having a political bent and not being 100% accurate, when pretty much everything said by every politician in both parties has a political bent and is not 100% accurate.
The real disappointing thing about the show is that it offered no alternatives or suggestions about how to deal with the deficit. Brian just says, we can’t close the deficit solely by taxing the rich. That is true, but what would he suggest we do instead? The real burdens on the deficit are our spending on the military, Social Security, Medicare and other entitlements. Spending on these programs is growing at an exponential rate. You could cut all non-military, discretionary spending to zero, AND increase taxes on the very wealthy to 100% and we would STILL be running a deficit. The Republicans are correct in saying that the deficit is not a revenue problem, it is a spending problem, but it is a problem with spending on programs no one wants to seriously talk about reforming. Until we are ready to discuss cutting military spending, Social Security benefits and Medicare/Medicaid coverage, EVERYONE is talking about “a coin in the ocean.”
George Soumakis says
July 13, 2011 at 12:07 pmIt is still amazing that we are asking people who have very little to sacrifice, while the rich, even those making 250k can not help to close the budget.
Rolling back the Bush tax cuts will bring us to a situation to cover some of the war expenses, a war started at the same time the tax cuts took affect, causing the budget to suffer more and more.
anything done for the budget can not only affect the middle class and the poor. any tax raises affect these people the most, since their spending gets affected.
George Soumakis says
July 15, 2011 at 8:56 amDefense cuts is a good way to cut our expenses including:
a. Stop unnecessary programs like second engines for discontinued planes (F-22)
b. Finish the two main wars fought at the backs of the middle class with the deficits it created
c. Invest in infrastructure in US rather than Iraq and Afghanistan
Robinson Mertilus says
July 18, 2011 at 9:35 pmI just wanted to make one point Peter’s comment above. I don’t mean to speak for Brian but from what I could tell, it was not an argument that cutting tax rates for the rich will solve our problems, it was an argument that increasing taxes on the rich will NOT solve our problems. It won’t, Peter.
Ro says
August 9, 2011 at 10:54 amBrian,
I’ve been a long time listener and love your show. This is the first time I’ve seen you get political and point a finger towards Obama in a rather obvious partisan fashion. Addressing something which does little to address the deficit is no reason to bash the President. A lot of listeners would wonder why you didn’t take Bush into account for the enormous war spending. That has an effect on the deficit too (a far larger one).
I know you’re a really level headed guy, but don’t wade into political matters like this. Focus on the issues rather than the personalities or parties. Its easy for somebody listening to this episode to conclude that you harbour strict Republican views and fortify that opinion based on the fact that you’re a contributor to Fox Radio as well. See where I’m going with this?
Don’t damage your credibilty. Its not worth it. I’ll continue to be a listener… but I’ll be screening your opinions through a political filter for some time.
Ro