Monday, September 15, 2008

Obama's tax cut for America

Since Senator Obama continues to utter the words “tax cut” on the stump, I feel it is necessary to finally call him on it with some facts. Every time those words leave his mouth, it has a fingernail-chalkboard effect on me that makes me shiver. For him to call his plan a tax cut is at best disingenuous, at worst an outright fraud. Yet he continues to tell voters this somehow hoping they will buy into it at their own peril. We all like to hear “tax cut”, but it’s what’s underneath the surface that will make us cringe.

As noted in the Wall Street Journal, what he calls a tax cut is actually a massive expansion of government spending in the form of tax credits for people who pay little or no taxes to begin with. After all, you can’t cut someone’s taxes when there is nothing to cut. US Government statistics show that the bottom 40% of income earners pay no income tax, and actually receive a net payment of 3.8% when factoring in current tax credits. That means the government is giving them money that they didn’t pay into the system. This is a government expense.

The middle 20% of income earners currently pay only 4.4% of all income tax revenue. So, the overall numbers tell us that the bottom 60% of income earners pay a net 0.6% of tax revenue after factoring in tax credits for the poor. That means that the top 40% of income earners pay 99.4% of income taxes, with the top 1% paying 40% of those. Some people, Obama among them, consider this to still be unfair and feel this number should actually be higher. And that is exactly what he plans to do. When interviewed by O’Reilly, Obama said it was the “neighborly” thing to do. Obama’s plan isn’t neighborly, it’s a gunpoint mugging by the US government (interesting fact: when Obama reported his combined income of 250K, he claimed only $2,000 in charitable contributions, that’s less than 1%, I wonder how “neighborly” he would call this?)

You may have heard him say that he is going to cut taxes on 95% of Americans. Well, that’s simply not accurate. When he says tax cut, he actually means tax credit and they are two very different things. This is Obamese for government spending. Our tax rates will actually stay the same, from a percentage standpoint. The exception to this is the two top rates which will increase to 36% and 39% respectively. The “cut” comes from more credits. And as I’ve shown, the bottom 40% of people don’t pay taxes at all, and in fact receive a net plus from the government. Obama plans to give them more. Bottom line, the bottom 40 will get a check. The rest of us in that 95% will get a new tax credit. You may recall something similar happening earlier this year when Congress passed an economic stimulus package. They called it a tax rebate, not a tax cut (as Obama prefers to say). It was a government expense. Whether or not Obama’s “cut” will be a one-time deal or renewable every year is unclear. But, more importantly, our tax rates will remain the same or will increase depending on your income. McGovern once proposed something similar. He called it a “demogrant”. Call it what you want, but this is nothing more than welfare disguised as a tax cut. It’s a government handout. It’s income redistribution in the purest form…literally take from the rich and write a check to the poor.

Those of us making over 250K a year will see our taxes go up substantially, but still not enough to pay for his handouts. In fact, Obama’s own website states that his tax plan will lead to a net decrease in revenue. Simply put, this means a higher budget deficit. Obama states that he will cut spending to offset this loss but gives no specifics on what will be cut. In my honest opinion, this means one thing: massive cuts in defense spending.

All in all, Obama’s budget calls for over $1 trillion in new government spending, yet he only accounts for 20% of that in tax policies. That’s $800 billion in new spending that is not accounted for, supposedly coming from spending cuts that he doesn’t specify. The numbers just don’t add up.

But many people may not care about taxing the wealthy. There’s a problem here. US government stats show that ¾ of all tax filers in the top 1% of income earners are small business owners. They file as individuals to avoid the high, unfair corporate taxes. These people will be hit especially hard by Obama’s plan. It’s also these people who are responsible for creating 75% of all new jobs in this country. Couple this with Obama’s intent to raise the minimum wage substantially, and you have a potential disaster for America’s largest employer, the small business, which will translate to a sagging job market.

Only 6 other nations have higher income tax than we would under Obama. Those six nations have an average unemployment of 7.35%.

Obama will empower labor unions and increase the minimum wage, two things that are bad for employers. In states with similar setups, we are currently seeing economic turmoil. Whereas, the states with less stringent regulation on business like Texas, Florida and Arizona are enjoying incredible economic growth even during our sagging national economy. Read this column by Phil Gramm for the details. The point is clear, economic prosperity comes via the private sector, not from government intervention. People in Illinois, Michigan and Ohio are currently learning that lesson in a harsh way.

Obama will raise the top brackets to the highest level since Jimmy Carter, and anyone who lived through those days can tell you the price we paid as a nation. But he won’t stop there. In addition to income redistribution, Obama will also increase the capitol gains tax, will increase the social security payroll tax, and impose a permanent estate tax at 45%.

First, capitol gains. This tax has been increased twice since inception. Both times it led to a decrease in government revenue. When asked if he was aware of this, Obama replied, “Well, it’s fair.” Why? Because Obama has adopted the basic progressive policy that our tax system’s main priority is not to generate revenue, but to redistribute wealth. Again, call it what you want, but this is socialism if not all-out Marxism. And when you consider that two-thirds of all Americans own stock, suddenly his “tax cut” doesn’t look so appealing. In one swoop, Obama will effectively raise taxes on two-thirds of Americans, not to mention the impact it will have on Wall Street and our overall economy when investments drop due to punitive taxation. Wall Street is already reeling from the mortgage crisis. It simply can’t afford new taxes on investment.

Then there’s social security. Again, it’s those making over 250K that will be hit hard on this, namely the small business owners, with an increase to 16%. Combine this with the income tax hike and now these people are paying 55% in taxes. The increased payroll taxes will ultimately lead to a net return from social security of less than 0%. That’s right. These people will lose money by paying into social security. So, Obama plans to take 55% of their income, force them to pay higher wages, and force them to invest in a retirement plan that is guaranteed to be a net loss. These are America’s employers. Is this fair?

In summary, Obama plans to grant more tax credits and handouts to those who pay little or no income tax. He plans to hammer small businesses with higher taxes and unfair minimum wage requirements, taking 55% of every dollar they earn. He plans to force people to invest in a failed retirement account. He will take 45% of all estates left to one’s heirs. He plans to raise the investment tax, despite the proven failure to generate revenue and the threat it poses to Wall Street. His tax plan will raise the deficit unless he cuts spending to the bone, most likely from the military budget (when has a liberal ever cut spending elsewhere?). And he will likely have a democrat Congress ready to enact his plan with little resistance. And we haven’t even gotten into his corporate tax rates which will increase our trade deficit and lead to more outsourcing of US jobs. Simply put, he will drive us into an economic meltdown. We are near the buckling point with oil prices and the failures in the mortgage market. Combine this with Obama’s plan, which will undoubtedly lead to higher unemployment and a plunging stock market and you have a recipe for danger. Obama calls it a “tax cut” for 95% of Americans.

2 comments:

Zach said...

US Government statistics show that the bottom 40% of income earners pay no income tax, and actually receive a net payment of 3.8% when factoring in current tax credits.

The CBO is cited in the Journal article you link to, but not any particular study. If I extrapolate from the numbers in Table 1-3 of this Tax Policy Center study (http://www.taxpolicycenter.org/UploadedPDF/411749_updated_candidates.pdf) I see that all tax quintiles pay a net Federal tax, and that all except the bottom quintile would continue to do so under Obama's tax plan. What's the CBO reference that says otherwise?

John Washburn said...

That's not accurate. The CBO stats seem pretty clear to me. The bottom 40% actually receive a net from the gov't via tax credits and rebates. This would increase under Obama.

Also, at a time when the market is desperately needing investment income, Obama's increase of the cap gains tax threatens to choke Wall Street of this investment, further building on the credit crisis. No rational person can say this is wise economic policy in times like these.

Voting for change just for the sake of change isn't necessarily the wisest thing to do. Not all change is good change. The economy CAN get worse and Obama's plan will do exactly that.