Wednesday, December 5, 2012

Obamas Fiscal Cliff Misinformation and 7th Grade Math

As I have pointed out, the President should be negotiating and brokering a tax deal and should not be out campaigning and politicizing the fiscal cliff negotiations. This is simply bad leadership. But it’s important to point out the misinformation that Obama is telling the public about the fiscal cliff negotiations.

First, Obama says that the Republicans are holding “middle class tax cuts hostage”. This is very misleading since Obama’s plan is to keep middle class tax rates the same. However, if no deal is brokered tax rates will go up to Clinton era levels. Basically, Obama wants to keep the same tax rate for the middle class that Bush implemented (Bush tax cuts). In fact, under Obama, middle class tax rates will go up next year even if a fiscal cliff deal is brokered. These taxes will be the first of many ObamaCare taxes that will go into effect. There will be a tax hike placed on medical devices hitting senior citizens the hardest. Americans who use Flexible Spending Accounts for medical needs will see these accounts capped at $2,500, effecting families with special needs children the most. There is going to be a 3.8% tax increase on investment income on families earning more than $250,000 annually. Americans who have high medical costs will see the tax deduction cap for these expenditures increased. And finally, the Medicare payroll tax rate is currently 2.9% for families earning more than $250,000 annually, this rate will be increased to 3.8%. Hence, the tax rate on middle class Americans as well as wealthy Americans is already going to being increased in 2013. And remember, these taxes affect income, not wealth. A person who makes $250,000 dollars next year could be in debt from student loans or from a business loan.

Secondly, Obama has talked about responsibly reducing the deficit with a “combination of cuts and revenue increases”. But the Obama fiscal cliff proposal includes no spending cuts; in fact, he proposes more spending including a 50 billion dollar stimulus. And what’s worse, Obama wants to eliminate congressional control over spending limits, placing the power to increase deficit spending under the sole control of the President. If a President was serious about reducing the debt then why would he want control over increasing the deficit levels? The reason is simple, this shows Obama is not serious about reducing the deficit and his record reinforces this fact. Obama has not passed a budget and he has increased the debt by more than any President in history and this attempted power grab illustrates Obama’s intentions to continue to increase our federal debt.

Thirdly, Obama says he wants to collect 1.6 trillion dollars of revenue over 10 years by increasing tax rates on the wealthiest Americans from 35% to 39.6%. This equates to 160 billion dollars annually in new tax revenue. In 2009 (this is the most recent IRS data I could find), the federal government only received 866 billion dollars in tax revenue. Today, 160 billion dollars in increased revenues equates to over a 16% tax increase! One way to do this is by increasing the effective tax rate on the top 5% of all earners by 5% (this is more than what Obama claims he wants to tax individuals). This would yield about 126 billion dollars in new revenue based on 2009 figures. If I adjust the 126 billion dollar figure based on the GDP growth over the past few years, this yields about 138 billion dollars based on 2013 projections. If GDP grows 3% annually, then this tax rate would easily average about 160 billion over 10 years. This amounts to an 18,000 dollar annual tax increase for over 7 million tax filers who average 360,000 dollars annually (many of these filers make less than 130,000 dollars annually). Even with favorable GDP growth, I do not see how Obama’s math works to increase taxes on only the top 2% of all earners by a max of 4.6% and average 160 billion dollars in new tax revenue annually. He would need a higher effective tax rate and or increase taxes on more individuals.

Obama’s math just does not add up. Either he is purposely misinforming the people or he is showing off his admittedly bad math skills.


  1. Obama seems to have his own brand of math: phonymath.

    An increase in the tax rate from 35% to 39.6% is a tax increase of 13.1%. Not surprisingly we’ve never heard this number spoken from Obama’s lips.

  2. Right CW. I use an effective tax rate of 5%. But to achieve an effective tax rate of 5% you need to raise taxes by at least 8 to 10% because of loopholes and deductions. And as I point out this tax would have to bee implemented on the top 5% of all earners, not just the top 1 or 2%.

  3. It is fortunate for Obama and unfortunate for the rest of us that not everyone is as sharp with math as you are. :)

  4. Well, it does not take a math wizard to fix our spending problem, anyone with commonsense could do it. But thanks for the compliment.