The president and the economic illiterates in the media do not know the difference between wealth and income. In his speech last night announcing the agreement on extending the temporary tax cuts put in place during the first term of the Bush administration, President Obama claimed that the cuts for “the wealthiest Americans” would remain in place for two more years. And in reporting the news that a deal was struck ABC News anchor Diane Sawyer said essentially the same thing. In fact the headline on the ABC website proclaims that “President Obama Reverses Position on Bush Tax Cuts for the Wealthy.” But the fact is that the cuts that are being referred to have nothing to do with wealth. They are income taxes and income is not wealth. One can understand that professional teleprompter readers like Diane Sawyer might not understand this very basic difference, but the president? The person whose opinions on economics matter more than anyone else in the country? (OK, so he may also be a professional teleprompter reader). 

You do not have to be a Ph.D. in economics to understand that someone can have a relatively high income and have accumulated very little wealth. For example a person earning $300,000 a year could be blowing all their income on travel, expensive wine and clothing, fancy cars, etc. On the other hand someone with a relatively low income could be quite wealthy. For example, a person earning $50,000 a year could have invested wisely over a period of time in real property like land, art work, or gold and have accumulated wealth valued in the millions. My question is, does the president not understand this distinction or is he purposely demagoguing to promote his class warfare agenda? Neither prospect is appealing. Of course the media mouthpieces who botch this distinction, I will assume, are just economic illiterates.

The fact is that the only wealth tax in this entire bundle of taxes that was agreed upon yesterday will be increased–this is the inheritance tax. In 2010 the tax on inheritance was zero. Going forward the tax will be 35 percent on all inheritances–that is wealth passed from one generation to another–worth over $5 million for singles and $10 million for couples. The reality is that the wealthiest Americans, or more precisely, the children of those wealthiest Americans who are unlucky enough to die in the next couple of years, will have their taxes increased.