By Jordan B. Rickards, www.RickardsReview.com

The best politicians are part con artist and part magician. Con artists fool their victims by exploiting their desire to believe something. Magicians fool their audiences through sleight-of-hand. Great politicians do both at the same time.

Consider the never ending class warfare rhetoric that has been intensifying of late from the dark nether regions of liberal America. There is a certain inevitability to this.  After all, this is an election year, this is tax season, and these are liberals of which we speak, who, no matter the economic climate, can conceive of no fiscal policy more advanced and nuanced than that the rich are not paying their fair share of taxes. When the economy’s going well, the rich should be paying more because they can afford it. When the economy’s going south, the problem is that the rich are not paying enough. Either way, the rich are the problem.

This is the con.

The proffered evidence comes in two forms.  First, we are inundated with media images of the rich enjoying a good life (yachting, drinking from chalices, haughtily wearing cardigans, etc.) juxtaposed against scenes of the less fortunate (or industrious) struggling to pay the mortgage on the home they just bought (that they may or may not have been able to afford in the first place). Secondly, we are repeatedly subjected to false comparisons of the tax rates paid by wealthier individuals (Warren Buffet, President Obama, Mitt Romney) to the tax bracket of an average American (usually a secretary, for some reason), which, of course, is only one of many factors which determine tax liability.

But never mind that.

Never mind that President Obama’s secretary, to whom he likes to compare his tax liability, makes $95,000 per year, placing her among the wealthiest 7% of Americans.

Never mind that the top 10% of taxpayers pay 70% of the taxes (while making 40% of the income), and at the bottom 50% pay nothing.

Never mind that the top 10% of American taxpayers carry a higher burden than the top 10% in any other industrialized nation, including socialist paradises France, Italy, and Sweden.

Never mind that the top 1% of American taxpayers pay more than the bottom 95% combined!

No, what’s important is not the truth, what’s important is the narrative, because the narrative that the rich are not paying their fair share is more useful. Politicians know that each of us desire to believe that someone else is the cause of our problems, and it follows that if someone else has more than us, it’s because that person has what belongs to us. So we Americans allow ourselves to be fooled into believing that the people paying the most are the ones not paying enough, not because we’re incapable of reading the contradictory data, but because we want to believe that whatever is wrong in life is the result of someone who has more not doing their part.

The con is used to make people desirous of a solution.  In this case, it’s to elect politicians who favor the President’s economic policy, highlighted by his proposed “Buffett Rule,” named after the previously mentioned Warren Buffet, the billionaire who himself believes he does not pay enough in taxes. (Apparently the IRS agrees, as Buffett allegedly owes over $1 billion in back taxes).  The Buffett Rule, in conjunction with Obama’s proposed fiscal year 2013 budget, promises to ensure that Americans who make at least $2 million pay at least a 30% rate, phasing in higher rates for those earning over $1 million, while reducing the amount of money Americans can exclude as non-taxable income.  This is accomplished by severely limiting the deductibility of charitable contributions.

Here’s where the sleight-of-hand comes into play.

Understand that the primary reason Obama’s and Romney’s personal tax rates are as low as they are (20% and 15.4%, respectively) is largely because both give inordinate amounts of money to charity.  Obama gave $177,000 (22% of his income) to charity in 2011, while Romney gave away $4 million (19% of his income).  These donations served to reduce their taxable liabilities substantially, because money donated to IRS approved charities is not taxable.

Generally, one can deduct up to 50% of his income if donated to charity. Obama’s plan, however,would limit charitable giving to no more than 28% of one’s income. While this might not sound like a significant change, the President predicts that this small measure alone will result in an increase in average revenues of roughly $58.4 billion per year.  But an increase in revenue for the government is a decrease in revenue for the private sector; and in this case, the sub-sector that suffers the most will be the Church.

This result is precisely what the sleight-of-hand is designed to conceal. Focus on the big picture, ignore the details. Watch as we tax the rich. You’re not supposed to notice who else gets hurt.

The problem this policy presents for the Church should be self-evident. When charitable donations reach a point that they are no longer deductible, the incentive to make donation curtails sharply because the lack of deductibility makes the donation considerably more expensive.  Further, the generally increased tax burden encourages Americans to hold onto more of their money, as more is needed to pay the higher taxes. This effectively means that the new money being brought in by the government is at the expense of the old money that used to be brought in by the Church and other charities.

Now consider that roughly one-third of all charitable contributions made by Americans each year go to churches.  $58.4 billion in new annual taxes on charitable giving would mean that $19 billion is reflective of taxes on donations to churches (i.e., one-third).  Because churches report approximately $100 billion per year in donations, this means that churches would find 19% of their annual revenue imperiled by Obama’s new tax plan.  Even if donations only drop by half that amount, it would represent a substantial attack on the financial well-being of churches, many of which — in particular black and Hispanic churches in the inner-cities — already struggle to keep their doors open.

There are other negative effects of the policy, of course. The mandatory 30% tax rate would mean that investment in dividend yielding stocks would become pointless, as previously the advantage to owning those stocks was that dividends were taxed at only 15%. This would result in a drop in the value of those stocks and the retirement accounts of anyone who owns them, as well as a sharp decrease in the other investments and activities that the tax code was designed to incentivize with its various credits, deductions, exemptions, and exceptions that would be nullified by a guaranteed minimum tax rate.

But the attack on the Church is arguably the most alarming aspect of Obama’s economic plan, and not just because it reaffirms liberalism’s longstanding antipathy for organized religion.  It’s because by taxing churches and other charities, liberals tax the very organizations that exist for the specific purpose of helping those people who need it the most.

The “Buffet Plan,” indeed, Obama’s entire economic model, makes for great demagoguery, but little else. The new taxes on productivity, investment, and charity can only serve to decrease each.  The rich will see a higher tax burden, the middleclass will see a drop in the value of their portfolios, and the poor will have access to fewer charitable services.  And this is typical of liberalism, attempting to lift politicians up by bringing everyone else down.

By Jordan B. Rickards

www.RickardsReview.com