State of the Union: Obama to double down on taxing the rich
The State of the Union will be an opportunity for President Obama to press his plan to tax the rich more, which could become a major issue in the 2012 campaign.
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Between 1995 and 2008, the earnings of America's top 400 income-tax filers went up 276 percent to an average of $164 million in adjusted gross income. Their average tax rate during that same period fell by some 39 percent, to 18.1 percent of income in 2008, according to Internal Revenue Service data culled by journalists at Politifact.com.Skip to next paragraph
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At the same time, economic progress for the average American has faltered. Adjusted for inflation, the median household income of $49,445 is about $1,000 higher than it was in 1995, but it is down from levels seen between 1997 and 2009, according to the US Census Bureau.
"This isn’t about class warfare," Obama said in the Kansas speech. "This is about the nation’s welfare. It’s about making choices that benefit not just the people who’ve done fantastically well over the last few decades, but that benefits the middle class, and those fighting to get into the middle class, and the economy as a whole."
Some independent economists echo Obama's view that big tax cuts for high-income Americans in recent years have failed to generate widely shared gains throughout the economy. At the same time, other tax specialists agree with the conservative counterargument – that raising taxes on the rich would amount to a tax on many small businesses, thus dampening the economy's growth potential.
In an analysis last year, Curtis Dubay of the conservative Heritage Foundation concluded that tax hikes acted as a hindrance to economic growth during the early Clinton years, while tax cuts under President Bush helped to generate significant job gains prior to the recession. The late-1990s boom, Mr. Dubay said, coincided with a Clinton-era cut in capital-gains taxes.
But an October survey of 40 economists by the University of Chicago's Booth School rejected the idea that tax cuts "pay for themselves" by stimulating economic activity. The panel concluded that a modest hike in taxes for high-income earners would not be damaging but would in fact boost federal tax revenues.
The current tax debate comes after a big run-up in public debt under Mr. Bush and Obama. A continued rise in debt, as a share of the nation's economic output, poses its own threat to economic growth.
Cutting taxes further, as Republican presidential candidates propose, could add to the debt pile if they fail to cut federal spending by a similar amount.
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