I've said it before and I'll say it again: the biggest issue in this election is the economy. Barack Obama's plan includes higher taxes and spending and an emphasis on spreading the wealth around, while McCain's plan includes lower taxes and spending and the promotion of growth. It's inexplicable, then, how Barack Obama is perceived as having a much better grasp on how to improve our economy (unless there are a lot of people who just don't know his plans or just want a handout). Check out the links in the “Critical Election Information” section at the top right of this page for all the gory details of Obama's plan. Here are some new voices weighing in on what he'll do to the economy.
Heavy-Handed Politics posts information from The American online magazine, Americans for Tax Reform, and the Heritage foundation. Take a good look, because this could become reality in under a week:
The American online magazine has an article by Alex Brill and Alan D. Viard that was posted on August 8, 2008 about Senator Obama's proposed 'tax cuts for the middle class' which they say are actually marginal rate hikes in disguise.
Click on the graph below to make it larger.
“Senator Barack Obama declared recently that he wants to “reform our tax code so that it rewards work and not just wealth.” We think that is a great goal if it means a simple tax system with low marginal tax rates. Unfortunately, a close inspection of Obama's proposals reveals something disquieting: he would raise marginal tax rates for many middle-income taxpayers, a bad move for anyone seeking to promote economic growth.
This also is illustrative and comes from Americans for Tax Reform:McCain vs. Obama on Taxes
Which April 15 would you rather have?
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The “marriage penalty” refers to a married couple paying a higher amount of combined income tax than if they each filed taxes as single
The “alternative minimum tax” (AMT) requires taxpayers to calculate their taxes two ways, and pay whichever method results in a higher tax owed
Self-employed taxpayers pay both ordinary income tax and self-employment tax (Social Security and Medicare)
The U.S. corporate income tax is currently the second-highest in the developed world. The average European corporate income tax rate is about 25%
It takes larger businesses several years to deduct machinery and equipment, even though they purchase the business asset in year one (e.g. a computer must be slowly-deducted over six calendar years).
What is the impact of tax increases? The Heritage Foundation comes up with these numbers:
- $2.4 trillion dollars for the overall tax increase the American families and businesses face if the tax cuts are allowed to expire.
- $1716 is what the average tax increase will be for over 100 million Americans if the tax cuts are allowed to expire.
- $2034 is the average tax increase that will hit 17 million seniors if the Bush tax cuts expire.
- 8.3 million is the number of jobs created after the tax cuts of 2003.
- $91 billion will be the cost of reinstating the Death Tax.
- $17.2 billion is the amount of our tax dollars Congress spent in 2008 on frivolous pork projects to reward special interest and pressure groups.
- 44 million is the number of married couples affected by the Marriage Penalty before it was reduced by President Bush. These families will be hit hard once again if the Marriage Penalty is allowed to be reinstated once again.
- $1480 The average cost in in the year 2000 for couples punished by the Marriage Penalty.
- $108 billion is the reduction in the federal deficit in 2005 thanks to economic growth sparked by tax cuts.
Some more details from the Heritage Foundation can be found here, if you like diving to that level of detail. What's especially interesting to note is that even Left-leaning think-tank groups predict an overal increase in taxation and spending under Obama's plans. The fact is that he hasn't detailed how he would pay for all of his new spending, especially given that even his proposed tax increases only cover a fraction of it.
A great way to look at the economy is explained in a column called “Obamanomics” by Amil Imani:
Obama doesn't tell you that in the present world money is like water. It flows to the lowest ground. And the lowest ground for money is found in places where it can make more money — not locations where it is seriously tapped by government. For example, Ireland where the corporate income tax rate is 12.5% and not the United States, which has the second highest rate in the world. As it is, one of the biggest reasons that many corporations set up their businesses abroad is the high cost of doing business here at home. Hence, a great many jobs are lost to overseas enterprises.
Obama doesn't tell you that rich people didn't get to be rich by being stupid. The minute they hear him talk about “spreading the wealth around”, they shift their money to safe havens where Obama can't get to it. Like those hedge funds run by George Soros and other big Democrat donors.
Obama doesn't tell you that much of the money invested in this country is from non-Americans, who do so not because they are philanthropists but because they believe in the American genius and our creative hard-working people who know how to produce wealth. Once they see Obama the taxman, they sell their holdings and move their money to safer havens. The result is that American company shares drop in value, companies won't be able to raise cash to do product development, so they will shut down their research departments and layoff workers. Or, they simply move their entire operation, or parts of it, abroad.
I think we all intuitively know this: the really, really rich people have ways to avoid the biggest tax hits that the less wealthy don't. Worst case scenario, they'll just sell their stuff and get out of the market to retire on an island somewhere, and that ultimately hurts the rest of us. Here's the key:
Obama's plan undermines the most powerful motive for wealth production: incentives. It is the incentive that makes a person work hard to provide for his own and his family's living, and secure his financial future.
Society after society has tried and failed the economic solution of “spreading the wealth around.” It doesn't work. All it does is discourage hard work and reward sloth. It is suicidal to buy into that failed policy, and that's exactly where Obama aims to take us. And in this dangerous scheme, he will have the House and Senate on his side.
Obama's aim is not to increase wealth for all Americans across the board, but to take the wealth of the top few percent and redistribute it to the huge pool at the bottom that doesn't pay any taxes at all. That's it, pure and simple. It's socialism, and it won't work long-term. It never has, and it never will. The producers will go somewhere else, leaving the leeches at the bottom begging for handouts that no longer exist.
So far, Obama-Biden have made good in-roads with a lot of people with their schtick about 95% of Americans getting a tax cut (this is a lie – see the links in the “Critical Election Information” at the top of the page) and their pledge that no one making less than $250,000 will have a single penny's worth of tax increases (this is another lie – see the links above again). Here's how the giant bait-and-switch begins:
Well, will families making less than $250,000 get a tax cut under President Obama, or not? Senator Obama has been saying this for months, but on Monday Joe Biden put the tax-cut income threshold at $150,000 in an interview with a TV station in his beloved Scranton, Pennsylvania. The Biden campaign later clarified — or at least tried to clarify — the matter by saying that anyone making between $150,000 and $250,000 wouldn't get a tax cut but also wouldn't pay higher taxes.
We suspect what's going on here is more than Mr. Biden's normal gift of gaffe. As with his admission that a President Obama would quickly be tested by our enemies, the Delaware rambler was stumbling into the truth. An Obama Administration couldn't possibly pay for a tax cut for 95% of Americans by raising taxes on a mere 5%. Those 5% don't make enough money, or at least they won't after they find ways to shelter more of their income when their tax rates rise.
Just as Bill Clinton promised a “middle-class tax cut” in 1992 only to raise taxes on the middle class in 1993, Mr. Obama will quickly find that his tax-revenue math doesn't add up. Add in the demands on Capitol Hill to spend more and to offset the Alternative Minimum Tax, and our bet is that even $150,000 would soon prove to be a moving tax target. Remember when the AMT was only supposed to hit 21 millionaires? Next year, without relief, it could hit 26 million taxpayers. Tax increases always hit the middle class because that's where the money is.
This is par for the course for liberal Democrats. Clinton promised a tax cut, and instead gave us a massive tax increase. Even if Obama follows through on his plan, it's simply redistribution of wealth rather than a tax cut. But, what if he doesn't follow through? What if he pulls a fast one like Clinton once he's in office and hikes taxes again? In fact, we know taxes are going up, because he's promised to let Bush's tax cuts expire, which will give everyone a net tax increase. Just because he's not legislatively increasing the tax rates doesn't mean he isn't allowing a tax increase to occur. It's simply a parsing of words, and deceitful at its core. The people who want their tax 'cut' will, in the end, get screwed the hardest.
Ultimately, Obama's plan is just another New Deal, and the Democrats are even calling it that. But, do we really want a new New Deal? Michael Barone examines the first one:
With victory in sight, Barack Obama's supporters are predicting that he will give us a new New Deal. To see what that might mean, let's look back on the original New Deal.
The purpose of New Deal legislation was not, as commonly thought, to restore economic growth but rather to freeze the economy in place at a time when it seemed locked in a downward spiral. Its central program, the National Recovery Administration (NRA), created 700 industry councils for firms and unions to set minimum prices and wages. The Agricultural Adjustment Act (AAA), the ancestor of our farm bills, limited production to hold up prices. Unionization, encouraged by NRA and the 1935 Wagner Act, was meant to keep workers in jobs that the unemployed would have taken at lower pay.
These policies did break the downward spiral. But, as Amity Shlaes points out in “The Forgotten Man,” they failed to restore growth.
Double-digit unemployment continued throughout the 1930s; despite population growth, the economy failed to rebound to 1920s production levels. High taxes on high earners (a Herbert Hoover as well as Franklin Roosevelt policy) financed welfare payments (“spread the wealth around”) but reduced investment and growth.
The political verdict was negative. New Dealers were whalloped in the 1938 off-year elections. Polls show that Democrats would have lost the White House in 1940 if that election had been decided on domestic issues. But war loomed. France fell in June 1940, just before America's two national party conventions, and Adolf Hitler and his then-ally Joseph Stalin controlled most of the landmass of Eurasia. Republicans did not have an experienced leader in this world crisis — Democrats did: Franklin Roosevelt, who cynically engineered his nomination for a third term and then swept to victory on foreign policy.
Roosevelt had thought that economic expansion was a thing of the past. But World War II stimulated huge growth in the American economy. New Deal welfare programs like the Civilian Conservation Corps and the Works Progress Administration (WPA) arts program were terminated. Wartime domestic policies were growth stimulators. Veterans Administration home mortgage loans, building on the FHA mortgage program, encouraged home-buying and after the war converted a nation of renters to a nation of homeowners. The G.I. Bill of Rights subsidized higher education for millions of veterans.
These programs stimulated growth partly because they required real effort — down payments, military service — from beneficiaries before they received aid.
The postwar Republican Congress elected in 1946 dismantled some New Deal anti-growth policies. Labor unions' powers to strike were sharply restricted. Tax rates were lowered, and wage and price controls were dismantled. Many hold-the-economy-in-place policies were retained until the deregulation of the 1970s and 1980s. But the New Deal was transformed sufficiently to permit buoyant economic growth for two decades after the war.
Obama seems determined to follow policies better suited to freezing the economy in place than to promoting economic growth. Higher taxes on high earners, for one. He told Charlie Gibson he would raise capital gains taxes even if that reduced revenue: less wealth to spread around, but at least the rich wouldn't have it — reminiscent of the Puritan sumptuary laws that prohibited the wearing of silk. Moves toward protectionism like Hoover's (Roosevelt had the good sense to promote free trade). National health insurance that threatens to lead to rationing and to stifle innovation. Promoting unionization by abolishing secret ballot union elections.
The impulse to social engineering is unmistakable. Government officials will allocate resources, redistribute income, and ration good and services. Use government stakes in banks, insurance companies and Detroit auto manufacturers to maintain the position of those already in place, at the cost of preventing the emergence of new enterprises that might have been spawned by the capital being allocated.
Social engineering of course is far easier when you are dealing with an economy that is frozen in place. It's harder when you have to deal with the creative destruction, the emergence of new firms and businesses, and the decline of old ones, which as Joseph Schumpeter taught is the inevitable consequence of economic growth.
Roosevelt in the 1930s had some extremely competent social engineers, like Harry Hopkins, Harold Ickes and Fiorello LaGuardia, who could enroll 750,000 people on welfare in three weeks and build an airport in less than a year. But even they could not spur the economic growth produced by utterly unknown and unconnected people, as Warren Buffett and Bill Gates were in 1970.
When financial crisis looms, there is an impulse to freeze everything in place and accept what is as the best there can ever be: Barack Obama's new New Deal. The history of the old New Deal suggests this is not a sustainable approach in the long run.
The New Deal sucked. It froze the economy in place through fear and a massive expansion of government. The only thing that brought us out of the Depression was the hyper-productivity of goods and services for World War II. Obama's policies will send us straight toward another depression that will cripple the economy, just like the New Deal did. Do we really want to repeat this particular mistake from the past?
Spread the word.
There's my two cents.