Wednesday, October 22, 2008

Obama's New Tax Plan

Well, it looks like Obama and the Democrats are leading in all polls in the final days of this tremendously long election season. McCain appears to be "huffing and puffing" to the finish line with no new ideas and riding the disappearing coat tails of a vivacious but inexperienced Sarah Palin. Really sad days in the Republican Party from what I am able to observe. No cohesion, no new message, no fire...

I think alot of people, especially higher percentages of independent voters, have been attracted to Obamas youthful and intelligent persona and are seeking change from the traditional politicians many of us have come to despise. I do think that he has represented SOME good ideas and a more hopeful, positive message than the Republicans have been able to muster this year. As I have often stated on recent blogs, I don't like either of the main party platforms at this point in America's history and voted 3rd party. Yet, I realize one more time we will be stuck with one of the bloated two party leaders for another four years...and it seems to point to Obama.

If/when he gets in office, one of the biggest concerns I have about his objectives is how he is going to pay for all his big "change" ideas. Everyone now has a clearer picture of our governments record deficits and a quickly sinking economy. In the middle of this, it appears that the focal point of his economic and tax plan is a "redistribution" of WHICH taxpayers pay WHAT within our system. While on one hand you can understand the desire for fair and balanced payment of taxes, it does concern me that Obama and the Democrats think they are going to be able to create more "entitlements" for the non-productive by taking more from the productive sector. Most people I have talked to who are voting Republican this year are doing so more as a vote AGAINST Obama than FOR McCain...and the main focus of their concern is Obama's not so subtle suggestion that its time for the wealthy and successful to pay more while a large percentage of the electorate will pay less. If this idea goes too far, it will appear much like other leftist or socialist exteme systems such as Chavez in Venezuela, and many other Central and South American countries who have been nationalizing their major industries, leaning heavy on the rich, and giving freely to the poor. It doesn't appear to me very successful in those countries when it comes to economic stability, balance and growth. I now see the potential for America to go down that same road and am very concerned about what the results will be.

An article today in the Wall Street journal probably more clearly examines and states my concerns. It bears repeating here as my summary statement:

Obama and the Tax Tipping Point
How long before taxpayers are pushed too far
WSJ 10-22-08
By: Adam Lerrick--professor of economics at Carnegie Mellon University and a visiting scholar at the American Enterprise Institute

What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes? Economists Allan Meltzer and Scott Richard posed this question 27 years ago. We may soon enough know the answer.

Barack Obama is offering voters strong incentives to support higher taxes and bigger government. This could be the magic income-redistribution formula Democrats have long sought.

Sen. Obama is promising $500 and $1,000 gift-wrapped packets of money in the form of refundable tax credits. These will shift the tax demographics to the tipping point where half of all voters will receive a cash windfall from Washington and an overwhelming majority will gain from tax hikes and more government spending.

In 2006, the latest year for which we have Census data, 220 million Americans were eligible to vote and 89 million -- 40% -- paid no income taxes. According to the Tax Policy Center (a joint venture of the Brookings Institution and the Urban Institute), this will jump to 49% when Mr. Obama's cash credits remove 18 million more voters from the tax rolls. What's more, there are an additional 24 million taxpayers (11% of the electorate) who will pay a minimal amount of income taxes -- less than 5% of their income and less than $1,000 annually.

In all, three out of every five voters will pay little or nothing in income taxes under Mr. Obama's plans and gain when taxes rise on the 40% that already pays 95% of income tax revenues.

The plunder that the Democrats plan to extract from the "very rich" -- the 5% that earn more than $250,000 and who already pay 60% of the federal income tax bill -- will never stretch to cover the expansive programs Mr. Obama promises.

What next? A core group of Obama enthusiasts -- those educated professionals who applaud the "fairness" of their candidate's tax plans -- will soon see their $100,000-$150,000 incomes targeted. As entitlements expand and a self-interested majority votes, the higher tax brackets will kick in at lower levels down the ladder, all the way to households with a $75,000 income.

Calculating how far society's top earners can be pushed before they stop (or cut back on) producing is difficult. But the incentives are easy to see. Voters who benefit from government programs will push for higher tax rates on higher earners -- at least until those who power the economy and create jobs and wealth stop working, stop investing, or move out of the country.

Other nations have tried the ideology of fairness in the place of incentives and found that reward without work is a recipe for decline. In the late 1970s and throughout the 1980s, Margaret Thatcher took on the unions and slashed taxes to restore growth and jobs in Great Britain. In Germany a few years ago, Social Democrat Gerhard Schroeder defied his party's dogma and loosened labor's grip on the economy to end stagnation. And more recently in France, Nicolas Sarkozy was swept to power on a platform of restoring flexibility to the economy.

The sequence is always the same. High-tax, big-spending policies force the economy to lose momentum. Then growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. The central bank tries to solve the problem by printing money. International competitiveness is lost and the currency depreciates. The system stagnates. And then a frightened electorate returns conservatives to power.

The economic tides will not stand still while Washington experiments with European-type social democracy, even though the dollar's role as the global reserve currency will buy some time. Our trademark competitive advantage will be lost, and once lost, it will be hard to regain. There are too many emerging economies focused on prosperity and not redistribution for the U.S. to easily recapture its role of global economic leader.

Tomorrow's children may come to question why their parents sold their birthright for a mess of "fairness" -- whatever that will signify when jobs are scarce and American opportunity is no longer the envy of the world.


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Timothy said...

You've really got to be kidding me. It's starting to sound like Conservatives in America don't like tax cuts unless it's for the rich. America enjoys a marginal tax rate on the lower end of the spectrum, rising taxes to that degree to upper-income earners will not result in "brain-drain" or the kind of behavioural shifts that will cause hurt to economic growth. There is simply no economic modelling that supports it. You also have to keep in mind that the tax rate for upper-income earners have significantly declined after both Reagan and Bush II. I believe I heard Obama say that his plan will take their marginal tax rate back to the days of Reagan. And he is, for some reason unknown to me, often idolised in conservative circles.

Also, I really don't mean to sound angry here, but what on earth is wrong with being a socialist? It's like how Mccain said to that old lady "Obama is not a muslim, he's a decent family man." The correct response is "So what if he's a muslim?" The same thing applies for the words socialist and liberal. Someone please give me a valid argument that persuades me that Jesus was not a socialist (in some sense of the word), or that socialism is by virtue an evil economic philosophy. Irrational fear about 'bad words' does not have a place in any serious policy discussion.

Timothy said...

By the way guys, all of the anger in that post wasn't directed at you two. Rather, to the authors that write articles similar to the ones that Ed quoted, and also the Mccain/Palin campaign which has been using the socialist word alot lately.

bob said...

Hi Ed.

Thank you for the service you are providing, writing about real issues and helping to keep peoples' minds on them. I want to challenge your Republican intonation, or maybe we could call it a Liberatarian bias, concerning Big Government. The Republican regime that has for 8 years bankrupted this country, has put the entire tax burden upon the normal American, the average working American, let's say 90% of the population. So the very wealthy are making money and seizing upon the tax loopholes, while paying "no taxes" and enjoying massive bonuses, when you and all of us pay 35% in capital gains, for example. Meanwhile, this administration has spent more money in the Oval Office than all other Presidencies combined. It's actually unbelievable to me that the Republicans always run on a platform of minimal taxes and small government, when at the same time they use the many different branches of the existing government to siffen tax dollars that come from the Average Citizen. The Reublicans are the "real" big spenders as it relates to operating a government, although they hoodwink the masses into believing that it is the Democrats who are the big spenders. Raising taxes always seems to land on the heads of seemingly defenseless Democrats. One could argue that this President's executive powers forced Capitalism into Socialism, and desperately promoted it. An obvious Oligarchy robbing the the drugged masses. Meanwhile, Palin taxes oil companies doing business in Alaska, and then redistributes the wealth to the people of Alaska: isn't that Socialism?

How do these Republican "leaders", such as McCain think we are going to pay for his 100 year war in Iran? Not to mention Iraq and Afganistan. Abraham Lincoln warned us about governments like the current Republican Administration:

"America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves."

Should we mortgage all of the land and all of the improvements of the entire US to China and Taiwan to wage needless wars?

edward said...

Thanks for everyone's thoughtful comments here. Interesting how this blog has elited the most comments from these months of blogging.

Tim...I do think that Jesus taught many principles that could be deemed "socialist" in nature. But, the Bible and Judeo-Christian tradition taken as a whole I believe more supports the idea of individual responsibility and "free markets". It has never espoused that the church OR the state should take on role of benefactor to the whole of society when it comes to finances.

In the late 70s and early 80s there was an exchange of writings addressing this chasm in modern day American Christiandom. Ronald Sider wrote a book "Rich Christians in an Age of Hunger" which was primarily focused on making Christians feel guilty about having so much when so much of the world was hungry. It was a good point to make, but some of his extremism did not hold up to Biblical tradition. Then came along a response called "Productive Christians In An Age Of Guilt Manipulators" by David Chilton which affectively challenged the foundations of Siders Christian socialist agenda from a Biblical perspective. I would encourage every believer to read these two books and examine the issue to their own consciences. I may do a seperate blog on this in the near future.

Bob, you make some great points regarding the hypocracies of our USA tax codes. Ideologically, I fall in the middle here because I believe in a flat tax fairly distributed to all wage earners and doing away with the volumes of special interests and complicated tax waivers and incentives that create a whole unnecessary layer of "professionals" to interpret or collect. The Republicans and Democrats are equally to blame for our inequitable system as they ALL cater to various special interests who line their pockets. I agree with you that our current tax system is helping to destroy the middle class and widening the gap between the rich and the poor. The solutions could be simple, but these simpletons in congress love to complicate the obvious. The bottom line on this issue is that America is losing the battle as a competitive tax system to do business in. That is why so many companies and rich people are flooding their money offshore...which they have a Constitutional right to do. The USA cannot just legislate itself out of this morass. Instead, it needs to bring America back to realistic and competitive taxes and regulations to lure international business back ONshore.

Timothy said...

Hi Ed,

I don't have ready access to those two books, so it would be great to see a blog post about their arguments in the future! You've got me really interested. Although I think the presence of Jesus' "it is easier for a camel to enter through the eye of a needle than for a rich person to enter the kingdom of God" is enough to automatically give the win to Sider haha.