Opinion: Columnists

Obama's favorite tax study undercuts one of his favorite tax arguments

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Opinion,Philip Klein,Columnists,Campaign 2012,Politics Digest

President Obama has jumped on a recent study to bolster his case that Mitt Romney wants to hike taxes on the middle class and give more tax breaks to the rich. But viewed another way, the study actually undercuts another one of Obama's central arguments.

Obama has long argued in favor of raising taxes on higher earners. And as the debt debate gathered steam in Washington, Obama increasingly tried to point the finger at wealthier taxpayers for failing to pay their "fair share." He went on repeatedly about tax breaks for corporate jet owners and hedge fund managers, and of course about Warren Buffett.

"Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households," Obama said during this year's State of the Union speech. "Right now, Warren Buffett pays a lower tax rate than his secretary."

In some of the most debated lines of this year's campaign, Obama said at a campaign stop last month that, "If you've got a business -- you didn't build that. Somebody else made that happen." Much of the dispute centered around whether or not he meant that entrepreneurs didn't build their businesses, or that they didn't build roads and bridges. But even assuming that he was simply referring to the fact that government helps create the conditions for entrepreneurs to succeed, we're still left with the fact that Obama made the argument in the context of calling for higher taxes on wealthier Americans. He praised those wealthier Americans who wanted "to give something back."

The suggestion is that under the current tax code, wealthier Americans aren't giving back enough to cover all of the benefits government has bestowed upon them.

By hammering out such arguments, day after day, Obama is leaving Americans with the impression that the tax code is rigged in favor of the wealthy. He's promoting the idea that those with money receive huge handouts from the government, as middle class Americans are left to pick up the tab.

Enter the Tax Policy Center. Last week, the think tank (a joint venture of the liberal-leaning Urban Institute and Brookings Institution), released a study poking holes in Romney's tax plan. The proposal calls for cutting individual tax rates by 20 percent across the board and recouping lost revenue by getting rid of various loopholes and deductions within the tax code. Though Romney hasn't identified which provisions he'd eliminate, the Tax Policy Center made certain assumptions and concluded that it would be mathematically impossible for him to achieve his plan without instituting an effective tax hike on lower income Americans -- which would violate another Romney pledge.

Though conservatives have presented a number of critiques of the study, assume for the sake of argument that it is accurate. The study's conclusion rests on the fact that middle and lower income groups benefit greatly from tax loopholes, deductions and credits. Its headline finding is that taxpayers with incomes of under $200,000 who have children would pay an average of $2,000 more in taxes for Romney's plan to work.

How is this possible? First, because Romney's tax cut doesn't go as far for lower earners, who have a relatively low income tax liability to start with. But more importantly, it's the lower earners who benefit from provisions such as the earned income tax credit (which is refundable) and the per-child tax credit.

In this way, the tax code is stacked in favor of lower earners. In 2009, according to the Congressional Budget Office, the bottom 20 percent of taxpayers actually had an average individual income tax rate of -9.3 percent (that's right, negative 9.3 percent), whereas the top 1 percent paid an average of 21 percent.

If Obama is going to make the Tax Policy Center study a major part of his campaign, he should stop pretending that the current tax code is rigged against the lower-income Americans to the benefit of the wealthy.

Philip Klein (pklein@washingtonexaminer.com) is a senior editorial writer for The Washington Examiner. Follow him on Twitter at @philipaklein.

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