To Tax or Not To Tax: For POTUS, That's One Easy Question

Confusion has erupted over whether President Obama intends to keep his campaign pledge not to raise taxes on anyone making over $250,000 (aka "the dirty, stinkin rich"). As I noted Sunday, that pledge seemed all but toast after "Taxman" Tim Geithner repeatedly refused to tell George Stephanopolous that the Obama administration wouldn't raise taxes on the middle class. What I failed to mention was that Larry "Self-Proclaimed World's Smartest Man" Summers simultaneously echoed Geithner's tax-increasing sentiments on CBS' "Face the Nation." (I guess Christina Roemer couldn't elbow her way onto "Meet the Press.")

Unsurprisingly, the advisers' not-so-subtle evisceration of one of the President's most important campaign promises did not sit well with the blogosphere, the MSM, and well, pretty much everyone making less than $250,000 a year. So yesterday, the White House went into "CYA Defcon 4" (note: not a real White House term, but it should be) and summoned Press Secretary Extraordinaire Robert Gibbs to calm the huddled masses. As the NYT reports:

The White House tried Monday to douse speculation that it might raise taxes on the middle class in violation of President Obama’s campaign promise, just a day after two of his top economic advisers left the door open to such a move to rein in spiraling deficits.

Mr. Obama told his economic team in a meeting at the White House that he intended to stand by his promise not to increase taxes on families making less than $250,000, aides said. He then sent his spokesman out to repeat that message in front of the television cameras.

“The president made a commitment in the campaign. He’s clear about that commitment, and he’s going to keep it,” said Robert Gibbs, the White House press secretary.

Hmm.

So on Sunday we have two of the President's closest advisers - including the guy in charge of the IRS! - repeatedly and explicitly refusing to say that the President wouldn't raise taxes on the middle class, but then we're supposed to believe that on Monday, they were BOTH totally wrong? We're supposed to believe Gibbsy that - despite the advisers' eerily similar rhetoric about "difficult choices" and desperately needing to "control" a "trillion dollar deficit" that they "inherited" - the eggheads had both gone rogue? Well, the NYT might be willing to easily swallow that story, but color me just a tad more suspicious (you're shocked, I know).

Today's excellent WSJ editorial hits on a few reasons why we all should be very, very suspicious:

In an editorial on February 26, “The 2% Illusion,” we wrote that the feds could take 100% of the taxable income of everyone in America earning more than $500,000 and still have raised only $1.3 trillion even in the boom year of 2006. The rich are fewer and less rich now, while the Obama budget is nearly $4 trillion.

Democrats already plan to repeal the Bush tax cuts, but that won’t raise enough money. So they’re proposing an income tax surcharge on “the wealthy,” but that won’t raise enough either. Democrats have no choice but to soak the middle class because only they have enough money to finance the liberal dream of yoking the middle class to cradle-to-grave government entitlements.

Democrats have already taxed the middle class by raising cigarette taxes to pay for the children’s health-care expansion. They’re also teeing up average earners with their cap-and-tax energy bill. Mr. Obama had hoped that cap-and-tax would raise some $646 billion over a decade, but Democrats in the House had to give most of that away in bribes to business to pass their bill. To finance ObamaCare, they’re also proposing another 10-percentage-point increase in the payroll tax on firms and individuals that don’t purchase health insurance. But this won’t raise enough money either.

All valid, and disturbing, points. And Reuters' always-great James Pethokoukis adds a few more scary reasons here (he offers 5 total, but one overlaps the WSJ's points):

1) Obama knows the budget math doesn’t work. Put aside today’s budget mess. It’s gospel among center-left wonks (the kind of folks who give Obama economic advice) that structural government spending as a percentage of GDP is headed sharply higher over the long term because of entitlements — and there’s little that can be done about it. The ratio has been around 20 percent or so the past few decades, and number crunchers forecast a sharp rise to 25 percent (best case scenario) to 30 percent (worst case) of GDP over the next few decades. Tax revenues typically hover around 18 percent of GDP. That gap — representing $500 billion to $1 trillion a year — will need to be closed or else cause economic chaos. The possible answers: a) less spending, b) higher tax revenues from higher growth, or c) higher tax revenues from higher rates on the non-wealthy. Oh, and the wonks are convinced “a” is a political impossibility and “b” an economic one. They’re wrong, but that’s what they think.

2) Obama seems to prefer tax hikes to spending cuts. Reduced future healthcare spending needs to be a huge part of the budget solution, and ObamaCare doesn’t make the grade at this point. Right now the various Obamacrat plans actually make things worse by failing to “bend the curve.” What’s more, Obama has proposed nothing as president to make Social Security solvent. And during the campaign, his preferred fix was higher payroll taxes rather than commonsense measures like extending the retirement age or changing how benefits are calculated. Of course, Obama has also proposed raising income, investment, corporate and energy taxes. Cut spending or raise taxes – for Obama it’s an easy pick, unfortunately.

3) Obama has already tried raising taxes. [See WSJ above]...

4) Obama’s advisers are for higher taxes. Let’s review, for example, what White House economic adviser and guru Larry Summers said on Sunday about tax hikes: “There is a lot that can happen over time. It is never a good idea to absolutely rule things out no matter what.” Indeed, Summers won’t rule it out because he thinks all the Bush tax cuts need to go, not just the ones for so-called rich folks. Here is Summers from earlier this year on Meet the Press when he put no qualifiers on letting the Bush tax cuts expire at the end of 2010: “I don’t think there’s any question they have to be repealed. The country can’t afford them for the long run. … They can’t be, they can’t be part of the long-run budget picture.” Not for anyone, it seems.

5) Obama doesn’t seem to think high taxes are harmful. Think about this: Not only was the top income tax rate a stratospheric 70 percent when President Reagan took office in1981, the tax code was not indexed to inflation. A lethal combo for economic growth. But here’s what Obama wrote about the Reagan tax cuts in The Audacity of Hope: “The high marginal tax rates that existed when Reagan took office may not have curbed incentives to work or invest, but they did distort investment decisions — and did lead to the wasteful industry of setting up tax shelters.” That’s it! Heavens, if Obama doesn’t think the pre-Reagan tax code wasn’t a disincentive to working, saving and investing, is there any tax system that he would find anti-growth?

Yeesh. I'd only add two more things:

1) To support the WSJ and Pethokoukis' arguments that we're out of "rich people money," I re-point you to my post from last Thursday on the Tax Foundation's review of the 2007 tax data. Their analysis showed that in 2007, the top 1% of all taxpayers paid a whopping 40.4% of all income taxes - and more than the bottom 95% of all taxpayers combined (39.4%). There just isn't enough blood in that "tax rich people" turnip.

2) Recent analysis by the AP shows that the recession has absolutely imploded federal tax revenues:

The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

Yikes.

Pethokoukis and the WSJ see the Dems' ultimate tax solution to be a Value-Added Tax (VAT) like the economy-breaking one in Europe that applies "to every level of production or service, and... is beloved by politicians in Europe because it raises so much money so easily without voters noticing." Well, that sounds fun.

I'm not so sure that the White House will go down that road because a VAT would require a fundamental reorganization of business and (more importantly) government, but here's what I do know:

Regardless of what Gibbsy, the President, or anyone else in the White House says, they are going break Obama's tax pledge, and the middle class is going to pay.

A lot.

UPDATE: When Obama loses Ruth Marcus, he's lost just about everybody.