Friday, June 27, 2014

The Middle Class Is Already Paying Higher Taxes

The Washington Post’s Zachary A. Goldfarb penned a blog post this week arguing that taxes on the middle class look destined to rise, in order to sustain additional spending on research and development, paid family leave, and other federal programs. But his analysis misses several key points: Taxes are already going up on the middle class—and raising them further won’t solve our fiscal woes.

Candidate Obama’s “firm pledge” from 2008 notwithstanding, the president has signed numerous tax increases that affect the middle class. For instance, a reauthorization of children’s health insurance signed in the president’s first month in office raised tobacco taxes. And Obamacare includes direct tax increases—on tanning products, for instance—along with indirect tax increases such as those on drug manufacturers, device makers and insurers, that the Congressional Budget Office and other experts agree will be “passed through to consumers in the form of higher premiums.”

Obamacare also stretches the definition of “middle class,” by failing to index its “high-income” tax for inflation—meaning more individuals will be ensnared by this tax every year. The nonpartisan Medicare actuary concluded that, while only 3% of households were subject to the tax in 2013, nearly 79% will be by 2080.  For these and other reasons, Politifact has said that the president broke his campaign promise not to raise middle-class taxes.

As to Mr. Goldfarb’s point that a middle-class tax increase would make the federal budget more sustainable, one quote provides the contrary argument:

If you look at the numbers, then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up.  I mean, it’s not an option for us to just sit by and do nothing.

Those words were spoken by none other than Barack Obama, in a July 2011 news conference. So while Mr. Goldfarb says that “it’s hard to see a way to preserve the nation’s entitlements without raising taxes further,” the reverse scenario is more accurate: Medicare needs significant reforms, regardless of whether taxes go up, down or stay the same.

Mr. Goldfarb is well within his rights to call for higher taxes on the middle class as a way to fund additional federal spending. But the facts are clear: The middle class is already absorbing higher taxes due to Obamacare—and higher taxes won’t solve our fundamental fiscal shortfalls. As the president himself might say, that’s not class warfare; that’s math.

This post was originally published at the Wall Street Journal Think Tank blog.