By Robert J. Swartout
Dolan Media Newswires
All election season we heard that battle cry of politicians as the masses protested against the top 1 percent of wage earners hoping that the “rich” will be able to pay enough in taxes to pay down our enormous federal debt and at the same time lower our annual deficit spending.
There were people camping out on Wall Street and chanting that they are part of the 99 percent and it is time that the “rich” paid their fair share of taxes. Wednesday morning came around and the ballots had been counted and Barack Obama had won re-election and it was time to sit down again with John Boehner, the Speaker of the House, and finally come up with the compromises that would be necessary to put America back on the right economic track.
Now is when we are supposed to be able to ride off into the sunset and regain the America we all remember … the one with jobs and houses that we could afford and an economy growing at a strong 3 percent to 4 percent.
Housing appears to be at an inflection point but a vast swath of the American public are living in homes where the mortgage exceeds the market value by a wide margin and it will be quite a few years before the market values rebound sufficiently to restore some home equity.
The reality that unemployment still is high without any relief in sight continues to cast a pall on America. However, not all of the news since the election has been worrisome.
Most Americans have had the opportunity to open their first paychecks of the New Year and discovered to their great excitement that they are “the rich” that everyone was talking about during the election. Actually, those Americans who are fortunate to have jobs and might have been lucky enough to earn a wage increase of right around the inflation rate of 1.7 percent for the year opened that first paycheck and saw not a 2 percent raise but no raise at all. They must have thought that maybe someone in payroll made a mistake.
That’s when it hits that there was no mistake, you are rich and have a job and just got a 2 percent increase in your payroll taxes to help pay for Social Security. After your cost of living raise, you now have less money in your paycheck for 2013. Consumer spending always has been the core juggernaut of the U.S. economy. Unfortunately, the 2 percent increase in the payroll tax directly will come out of discretionary spending and will have a slowing effect on the economic growth of the county in 2013. This higher payroll tax will not help create jobs. This higher payroll tax will not improve the depressed value of housing. Lastly, this higher payroll tax will not make the Social Security program solvent for our children’s generation.
Before the election, many politicians struggled to define rich. Some have suggested that a married couple making more than $250,000 a year is rich. Perhaps if you live in North Dakota but if you live in metropolitan New York you might argue with the $250,000 definition of rich. If we do use this as the definition of rich, they saw the higher payroll tax but only on the first $227,400 of earnings. The rise in the payroll tax affects each wage earner up to the first $113,700 in wages. So a married couple will stop paying this payroll tax after they have made $227,400 for the year. This tax will be shared by everyone earning a paycheck in America rather than just including the rich, but the rich will be exempt from this tax above $227,400 for a married couple filing jointly.
If the president and Congress wanted to give the working class a break and tax the rich, perhaps they should have exempted the first $25,000 of earnings from this tax increase and removed the ceiling on how high the tax can be applied.
Now that would be taxing the rich.
The reason that Congress and the president have to reach into the middle class for tax revenue rather than focus on the top 1 percent of wage earners is the same reason that Willie Sutton used when asked why he robbed banks …” because that is where the money is.”
Robert J. Swartout is a vice president at Karpus Investment Management, and writes a column for The Daily Record in Rochester, N.Y., a Dolan Media newspaper.