Obama’s Economic Plan Would Punish Some Hardworking Americans
By Alan Stewart Carl | Related entries in Barack, EconomyLawrence Kudlow, writing for Real Clear Politics, points out the problems in Barack Obama’s economic plan:
First off, you don’t raise taxes during a recession. That’s a no-brainer. Second, doubling the capital-gains tax rate will affect Americans up and down the income ladder, not just rich hedge-fund managers. In addition, capital-gains tax cuts are self-financing, and they stimulate jobs and the economy. You want to raise budget revenues and spark economic growth? Cut the cap-gains tax rate. That’s what history shows.
The Wall Street Journal’s Steve Moore points out that in 2005, almost half of all tax returns reporting capital gains came from households with incomes under $50,000, while more than three-quarters came from households earning less than $100,000.
Obama also proposed uncapping the payroll tax, another blunder that will hit people up and down the income ladder. While Obama pledges tax hikes only for folks earning more than $200,000 a year, his tax hike on payrolls would actually slam middle-income earners. The cap on wages subject to the payroll tax is presently $102,000. By eliminating that cap Obama will be soaking veteran firemen, cops, teachers, and health-service workers, along with a variety of other occupations.
In fact, in America’s largest cities, a firefighter married to a school teacher can earn close to $200,000 filing jointly. So not only will each spouse separately pay more for Social Security and health care under Obama’s plan, together they’ll also be slammed by Obama’s cap-gains tax increase.
Kudlow makes some assertions on economic issues that are still up for debate, but his premise is sound. Just because a family earns what sounds like a lot of money doesn’t mean they have piles of disposable income floating around, available for the government to snatch up. In many cities, housing prices are quite high and cost-of-living is increasing.
It’s quite easy for a family of four to make $200,000 a year and sink most of that back into basic expenses with only moderate indulgences. Raising their taxes would force them not to eliminate yachts (they don’t own any) or $1,000 a night rooms during Las Vegas binges (they don’t do that) but to live in a smaller home or, most likely, reduce their personal savings, putting less in their IRAs and education funds and the like so the government can have a bigger piece of the pie. That is not only unfair it’s counter to the very notions of personal responsibility.
The key problem with Obama’s and most other Democrat’s economic plans is that they see the wealthy and even the kinda sorta wealthy as undeserving of their income. While Kudlow’s firefighter/teacher example is pushing believability, it is true that government employees who’ve worked many years for that top pay scale and doctors who’ve undergone nearly a decade of training can earn good money. They deserve their compensation. They should not be obligated to forfeit a larger share of their income simply because they’ve worked hard and become successful. Payments into Social Security are capped because payments out of Social Security are capped. Unless we’re going to start paying higher earners more in Social Security after they retire, it is profoundly unfair to ask them to bear a greater burden while they are working.
We can debate the appropriateness and effectiveness of higher taxes for the ultra rich, but penalizing families who make $200,000 a year places the aspirational cap extremely low. It actually creates disincentives for people to strive for higher incomes and penalizes hard working Americans who’ve done nothing wrong but make good choices and become successful.
This entry was posted on Saturday, April 19th, 2008 and is filed under Barack, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
April 19th, 2008 at 2:08 pm
No kidding! That’s what socialist policies do: Create “disincentives for people to strive for higher incomes and penalizes hard working Americans who’ve done nothing wrong but make good choices and become successful.” Well said! Which of course is exactly what we DON’T need in a recession with stagflation, record federal debt, and low value dollars. Obama is the poster boy for more government meddling, of which taxes are the worst example. He would be the gasoline on the fires started by the fiscal irresponsibility of the Bush Administration. Cutting taxes was about the only thing they did right.
April 19th, 2008 at 2:22 pm
marginal utility of money means that the rich will get taxed more, its not meant to punish the rich, its just how it works out an extra dollar is worth less the more you have so taking it away through taxes has less effect.
Now I agree while Obama’s straight plan to raise the capital gains tax doesn’t work, neither does your idea of just cutting it, because you will stand to lose revenue from income taxes. No you reform the taxation, the lower brackets currently pay 5% in cap gains tax, they shouldn’t pay any taxes on it, but the highest two bracket pays only 15%, they should be more like 20-30%, and the rest should be between 5-20% depending on bracket. This should be in addition to a base tax that covers all income
And you do raise taxes when you are running deficits in the 400 billions and no one is willing to cut spending, McCain keeps cutting back on what earmarks means, he went from 60 billion to less than 20 billion in under a week.
Either you get out of Iraq and cut defense spending, alsong with reforming Medicare, medicaid, social security, cut aid to Israel, etc.
Or you pay higher taxes, there is no free lunch
April 19th, 2008 at 6:22 pm
How do people avoid paying income tax when capital gains rates are lowered? How does the combined revenue of income and capital gains taxes decrease if the income tax rates say the same, assuming revenue from capital gains goes up?
April 19th, 2008 at 7:12 pm
I think Avinash is talking about people who can take stock options in lieu of salary, thus shifting some of their wage income into the territory where the income would be taxed as cap. gains. Seems to me that this loophole could be closed in a different manner though- put a cap on the amount of non-salary income that can be given, and then above that cap if people still choose to take stocks in lieu of wages they’ll have to pay a penalty that would equal what they’d have paid in wage income tax. That’d be a bit like the caps on 401k contributions- to avoid the use of that structure to avoid income tax.
April 19th, 2008 at 10:11 pm
@Jimmy:
Revenue from Income taxes dropped during the first few years of the Bush administration, even though capital gains taxes were cut, even now they aren’t at their peak as a measure of GDP, seems to me an indication of a loss in revenue
April 20th, 2008 at 7:10 pm
[...] an interesting exchange at Donklephant in which Alan Carl takes issue with the tax provisions of Obama’s proposed economic plan: [...]
April 20th, 2008 at 11:28 pm
This is Lawrence Kudlow. He is an avid and complete believer in supply side economics. He believes not in low capital gains taxes, but no capital gains taxes or taxes on dividends. A blog that specializes in economics and admittedly is left of center talks about it.
April 21st, 2008 at 9:26 am
“It actually creates disincentives for people to strive for higher incomes and penalizes hard working Americans who’ve done nothing wrong but make good choices and become successful.”
I hardly think people will stop striving to make more money because they may get taxed slightly more. Lets not go completely over-board here. Paying taxes is also not a penalty. You don’t get punished when you make lots of money, you get asked to contribute back to the system that allowed you to make that money.
I think the American/Corporate motto of increasing your profits at all costs has proven that it doesn’t work for society as a whole. SImply look at how corporations are doing in this economy vs. how the working man is doing. So maybe paying a little more taxes off my $200,000 income will pay for some better schools and help someone ward-off foreclosure on their home. Small price to pay in my opinion.
April 21st, 2008 at 10:16 am
Thomas: “You don’t get punished when you make lots of money, you get asked to contribute back to the system that allowed you to make that money.”
Euphemistic take. I bet a huge number of people would beg to differ on your rendition of reality. Personally, I don’t recall, EVER, being asked by the State or the Federal government whether I would consider paying in, nor how much I would contemplate sending.
I think it’s none of your business what people want to do with their money, however, I think your “charitable” attitude should be tested in the real world.
How about you willingly sending more taxes with your return? After all, if this whole thing is voluntary why stop at the bracket you are in?
As to “punishment” it comes down to perspective and values. No rationalization is going to sweeten that pill.
Many like me, would rather choose WHO and WHERE to send their “extra” money, instead of the government ripping us off and deciding the allocation of our hard-earnings.
April 21st, 2008 at 11:17 am
Actually Thomas is right and it’s not a euphemistic take. In the land of the modern conservative government is evil and has no right or reason to tax people. While they speak of smaller government and being willing to pay what they view as reasonable taxes somehow they can never persuade the majority to eliminate all social programs and regulatory agencies, which is what it would take to shrink government to a level they would presumably be willing to pay for. On blogs you get the “argument” that Elisabetta put forth about not being asked what she’s willing to pay for and the amount she’s willing to pay. I’d love to see what kind of system these people would suggest that would allow that kind of interaction in a country with the population of the United States. It’s a strawman argument and not even a very good one.
April 21st, 2008 at 3:21 pm
This is retarded. Obama favors less taxes. Thats the whole point of this discussion. He would rather have less tax revenue come in to the Federal government so long as he can double the rate of capital gains taxes, just because he thinks it is “unfair” for investors to make large amounts of money.
April 22nd, 2008 at 10:48 am
I’ll bite. In which American city can a firefighter and a schoolteacher - let’s say, with 30 years experience each - come close to $200,000 a year?
April 23rd, 2008 at 10:57 am
Comebacks such as “straw man” argument are only effective when appropriately used. Otoh, I addressed and refuted the line of thought that Thomas laid out. He made two easily refutable contentions:
a. People are not PUNISHED when making lots of money.
b. People are ASKED to contribute.
His feeble attempt to purport the facts as something other than what they are, is euphemistic and wrong. People are told - NOT asked - how much to pay and they are MULCTED for achieving more. Whether one agrees or not that people should be consulted or how that can be accomplished doesn’t change that Thomas’ premise was specious.
Perhaps, Thomas should rephrase what he actually meant.
Though, I am sure he did.
As to the many wasteful social programs and useless spending that are not cut back or reined in, conveniently some ignore WHO are the beneficiaries of keeping those programs alive; and which party stands to gain the most from keeping people down and dependent. That is, democrats!
How can democrats repudiate the very things that keep them in power? They can’t. Therefore they battle to justify them, even demonize their opponents - to maintain in place whatever necessary to stay in control, no matter how counterproductive; no matter how little or no return those programs actually produce.
Unfortunately, for them, not everyone is mesmerized into the lie that the “government (i.e. liberals) know what’s good for us, better than we do. There lies the ongoing fight between libs and cons.
Class, race and gender inequality are some of the things democrats pretend to fight against, instead exacerbate by the very policies they push forward.
Class-warfare, race-baiting and gender-fighting are at the very core of their agenda and the reason Jackson and pals are democrats.
It’s been said before, but apparently some are deaf, that conservatives do not envision a world without taxes. That’s utopian and foolish. Instead, what conservatives want to see happen is a more balanced view of taxation than the present kind or the one we will get if a liberal gets into the W.H. A society, where everyone - not only the few - pay in, and where those who contribute are not doubly punished in the name of liberal “fairness.”
Small difference to some, huge to others.
Short of an epiphany Jim and I will continue to differ.