Obama tax-increase designs not likely to shrink deficits, debt

Things may only get worse due to President Barack Obama's focus on raising taxes on “the rich.” History shows the more politicians raise rates, the more they carve out complex exemptions to benefit favored industries or causes.

Want proof? Look at the exemptions the Obama administration insisted on including in the recent tax-raising “fiscal cliff” deal. Even as Obama sought a major tax increase, Reuters reported his administration insisted on around $64 billion in tax breaks for “companies involved in wind energy, auto racing, rum, Hollywood films and much more.” Apparently Obama's call for shared sacrifice doesn't apply to Hollywood millionaires, just those who can't afford a lobbyist.

Liberals often pine for the 1950s, when the top income tax rate was as high as 91 percent. But as James Pethokoukis of the American Enterprise Institute notes, the 1950s tax code was “full of loopholes.” In a 2012 paper, Joseph J. Thorndike, director of the Tax History Project at Tax Analysts, noted that the high income tax rates of the 1950s were often offset by favorable capital gains treatment, breaks on dividend income and a very generous depreciation regime.

By 1961, Thorndike points out, deductions in the highest income group totaled 20.4 percent of adjusted gross income, up dramatically from 12.9 percent in 1954. By 1961, thanks in part to lower rates for capital gains, those earnings represented 75 percent of reported income for the wealthiest cohort of Americans, up from 40 percent in 1953.