During the present “fiscal cliff” negotiations, President Obama and congressional Democrats have repeatedly claimed an electoral mandate to increase taxes on all of the wealthy, defined as the top 2 percent, or those earning more than $250,000 per year. Poll upon poll has produced results that seemingly confirm there is such a mandate. The truth is that there is not.
A recent example of polls being used against Republicans who oppose tax increases is the NBC-Wall Street Journal poll that found a strong majority, 59 percent to 36 percent, think Mr. Obama has an electoral mandate of “eliminating the Bush tax cuts for those with higher incomes over $250,000 per year.” Unfortunately, most of the public does not know what the top tax rate is today or what the top rate would be if the Bush tax cuts expired. Thus, there is no real measure of what the public supports with regard to the top tax rate.
How can there be a mandate to increase a presently unknown rate to a higher unknown rate?
There are two questions we should be asking, because the answers will tell us whether a real mandate exists and what its nature is. First, what perceptions about the top tax rates did Mr. Obama create among the public that won him a mandate to increase? Second, how do these perceptions square with reality?
If the perceptions he created square with reality, he has a mandate.
There were three examples Mr. Obama used almost exclusively throughout his campaign to paint the picture that the wealthy do not pay enough in taxes: Mitt Romney, Warren Buffett and himself.
Regarding the tax rates of Mr. Romney and Mr. Buffett, Mr. Obama sadly failed to provide full disclosure to the American people. He did not say the exact rate the two pay but merely portrayed it as lower than the rates paid by their secretaries and middle-class families across America. He was referencing the capital gains tax rate of 15 percent that most of the very rich pay on investments, which are their primary source of income. Mr. Obama and his allies even suggested that Mr. Romney may have even gotten away with paying zero taxes for several years, a charge that was never proved and that Mr. Romney’s campaign disputed.
The Obama campaign’s portrayal of individuals like Mr. Romney and Mr. Buffett could not be further from the truth. In fact, their investment income is double-taxed, first when the corporation they invested in has to pay corporate taxes on their investments and then again at a 15 percent rate when profits are passed down to them as individuals via dividends or capital gains from the sale of stock. The double tax puts their effective tax rate far higher than the zero percent to 15 percent tax rate Mr. Obama obliquely portrayed them as paying. In reality, the highest marginal tax rate can reach 44.75 percent when corporate profits are taxed fully at the 35 percent rate.
This does not even take into account that the initial money they invested likely was earned as after-tax income earlier, making it triple-taxed.
It is middle-class families, not Mr. Romney and Mr. Buffett, who rightly pay a lower rate. The middle class pays a 15.1 percent effective income tax rate. Beyond the uberrich like these two gentlemen, the top 1 percent of income earners pay an effective tax rate of 29.5 percent, almost double that of middle-class families. Thus, Mr. Obama could not have a mandate to make the affluent pay a greater rate than the middle class if they already do.
Sadly Mr. Obama also dodged full disclosure on his own tax rate, never saying in campaign rallies or debates exactly which tax rate he paid and exactly which tax rate he thinks he should pay.
By speaking vaguely and inaccurately about the tax rates the wealthy pay — tax rates he thinks are inadequate — Mr. Obama has failed to prove a specific electoral mandate on tax rates. Without a clear mandate, we are still left with the question of what the public truly thinks the top tax rate should be for affluent Americans.
The question remains vague: Should the wealthy, who currently pay an undefined rate, pay a higher undefined rate?
In February, the Hill newspaper broke the ice and asked respondents what they thought the top tax rate should be. The results were, in fact, counterproductive to the prevailing narrative. They found that 61 percent of likely voters thought the top tax rate should be 25 percent or less, evidence of majority support for lower taxes when the present top statutory rate is 35 percent and the average effective tax rate of top earners is 29.5 percent. Further, 88 percent thought the top tax rate should be 35 percent or lower. Just 4 percent supported a top tax rate of 40 percent, which is closest to the proposal of Mr. Obama and congressional Democrats, who want to increase the top tax rate to 39.6 percent.
In other words, just 4 percent support the top tax rate for which Democrats claim they have a mandate.