Obama`s Attack on the Middle Class
Obama and his public relations team have made it
appear that his trillion dollars in higher taxes
will fall only on
Obama stresses that his tax increase is only for the
richest 5 percent of Americans while the other 95
percent receive a tax cut.
The fact of the matter is that the income
differences within the top 5% are far wider than the
differences between the lower tax brackets and the
American in the 96th percentile.
For Obama, being
begins with $250,000 in annual income, the bottom
rung of the top 5 percent. Compare this
income to that of, for example, Hank Paulson,
President George W. Bush`s Treasury Secretary when
he was the head of
In 2005 Paulson was
paid $38.3 million in salary, stock and options.
That is 153 times the annual income of the
Despite his massive income, Paulson himself was
not among the super rich of that year, when a dozen
hedge fund operators made $1,000 million. The
hedge fund honchos incomes were 26 times greater
than Paulson`s and 4,000 times greater than the
"rich" man`s or family`s $250,000.
For most Americans, a $250,000 income would be a
godsend, but envy can make us blind. A $250,000
income is not one that will support a rich
lifestyle. Moreover, many people prefer lesser
incomes to the years of education, long work hours
and stress of personal liability that are
associated with many $250,000 incomes. In truth,
those with $250,000 gross incomes have more in
common with those at the lower end of the income
distribution than with the rich. A $250,000
income is ten times greater than a $25,000 income,
not hundreds or thousands of times greater. On
an after-tax basis, the difference shrinks to about
The American tax code taxes the $250,000 income
at the same rate as it taxes a $100,000,000 or
higher income. On an after tax basis, after
the federal government grabs 30% in income taxes and
state government grabs 6%, the
man or woman or family earning $250,000 has
$160,000. In New York City, where there is a
city income tax in addition to state and federal,
this sum diminishes further. State sales taxes
take another 6 or more percent of most consumption
When all is said and done, the after-tax value of
a $250,000 income in New York City is about
Is this rich? It might be in a small town
in Alabama, but not in New York City. The
person or family won`t be purchasing a Manhattan
apartment, much less a brownstone. They won`t
be driving a luxury car. Indeed, they won`t be
able to afford a parking garage for an economy car.
If they fly anywhere, it won`t be in a first class
For the most part, $250,000 incomes are located
in large cities where the cost of living is high.
For example, a husband and wife who are associates
at major law firms, each of whom works 60 hour weeks
and has no job security, earn $125,000 each. They
might both have student loans to pay down. For the
Obama administration to lump these people in with
Hank Paulson or billionaire hedge fund operators is
What is the difference between the $250,000
income and the $245,000
income? After Obama`s tax scheme goes into
effect, the $245,000 income will benefit from a tax
cut, and the $250,000 will have a tax increase.
Will people in the 96th percentile ask for pay cuts
that will drop them into the 95th percentile?
In America, the truly rich are those in the top
0.5% of the income distribution. These are the
people with yachts, private airplanes, and who are
still rich after they lose half their wealth in a
stock market collapse caused by government policy
that accommodated financial gangsters.
"Oh well, I was worth $600,000,000
last year and only $300,000,000 this year.
Perhaps we should stop drinking $1,000 bottles of
rare vintages and move down to $100 a bottle wines.
Probably shouldn`t buy that new yacht or that villa
in the south of France."
The upper middle class with $250,000 gross
incomes are major losers of the financial collapse.
Many of the people in this income class are
leveraged to the hilt in order to maintain
appearances and can be swept away as easily as the
very poor. But those who were frugal and
invested for their future have lost 50% of their
savings. These wiped out people are the ones
who will bear the brunt of Obama`s tax increase.
If the tax rate on a multi-million dollar annual
income goes up by 5 percentage points, the cutbacks
won`t really affect the lifestyle. But for the
$250,000 gross income group, it means no prospect of
private schools and Ivy League education for the
children, who will be attending state colleges with
the rest of the non-rich.
Obama is attacking the only income class that has
any independence—the upper middle class
professionals. The real rich are few in number
and seldom present any opposition to government.
New York Times
reported (March 23, 2009) that the 400 richest
Americans` "share of the nation`s total wealth has nearly doubled to more than 22
percent." The average income of the 400
richest Americans is $263 million annually.
That is 1,052 times the income of the
What the Obama administration is really doing is
taxing ordinary people in order to bail out the
super rich. The 95% of Americans who get the tax cut
will find that it is offset many times by the
depreciation in the dollar and the raging inflation
that will result from monetizing the multi-trillion
dollar budget deficits made necessary by the
bailouts of the banksters.
In the United States, government has become
expert at manipulating both left-wing and right-wing
ideologies. It keeps those on both ends of the
spectrum set at each other`s throats in order to
ensure the government`s continuing independence from
Historically, the definition of a free person is
a person who owns his own labor.
Serfs were not free, because they owed their
feudal lords, the government of that time, a maximum
of one-third of their labor. Nineteenth
century slaves were not free, because their owners
could expropriate 50% of their labor.
Today, no American is a free person. The lowest
tax rate, not counting state income, property tax
and sales tax, is 15% Social Security tax and 15%
federal income tax. The
American" starts off with a 30% tax rate, the
position of a medieval serf.
Paul Craig Roberts [email
him] was Assistant
Secretary of the Treasury during President Reagan`s
first term. He was Associate Editor of the Wall
Street Journal. He has held numerous academic
appointments, including the William E. Simon Chair,
Center for Strategic and International Studies,
Georgetown University, and Senior Research Fellow,
Hoover Institution, Stanford University. He was awarded
the Legion of Honor by French President Francois
Mitterrand. He is the author of
Supply-Side Revolution : An Insider`s Account of
Policymaking in Washington;
and the Soviet Economy and
Meltdown: Inside the Soviet Economy,
and is the co-author
with Lawrence M. Stratton of
The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice. Click
here for Peter
Brimelow`s Forbes Magazine interview with Roberts
about the recent epidemic of prosecutorial misconduct.