The Homa Files

The two parts of Obama’s speech that struck a chord with me were (1) he promised a cure for cancer and (2) “not a dime” of additional taxes if you make less than $250,000. 

Since most of my Homa ancestors had cancer of one mode or another, I’m all for eradicating it.  The sooner the better. I’m a bit skeptical, but what the heck.

Since I now rake in about $8.75 per hour teaching, I can slide comfortably under the “tax the rich” threshhold.  But, I’m even more skeptical of this one.

Last summer, I posted several pre-election tax analyses (mostly drawn from work at the Heritage Foundation) that drew two fundamental conclusions:

(1) The Obama tax plan would create a new voting majority in America: people who pay zero income taxes (or less) but draw mucho resources from the system. That train has left the station. The largest item in the stimulus package was the across-the-board $400 low income tax cut. 

Though it’s only about a buck a day, it’s enough to swing income tax payers from a majority to a minority.  The Congress’ nonpartisan Joint Committee on Taxation estimates that 62.4 million will have a 0% income tax rate. That’s not good. 

Now they (non-tax payers) can vote for any program — beneficial to the common good or just plain whacky — and simply order the dwindling number of tax payers to up their ante.

(2) The Obama tax plan was essentially a tax revenue breakeven — simply redistributing about $135 billion each year from the top earners to low income earners.

Here’s the rub: last night, Obama indicated that the $400 credits that were billed as “temporary stimulus” last week will become permanent — and I assume, bumped up to $500.  And, the “Bush tax cuts for the wealthy” would be allowed to expire — bumping the top marginal tax rates.

OK, but that’s essentially budget neutral, and Obama said he’d be cutting the deficit (while spending more).  Hmmm.

Answer: go get even more from the folks in the top tax bracket … the really rich.

But, the Congress’ nonpartisan Joint Committee on Taxation estimates that 1.1 million income tax filers will have $733.3 billion in income taxed at the top marginal rate of 35% rate this year. Taxed at the 35% rate, the $733 billion currently produces about $250 billion in federal revenues … leaving them with about $500 billion. 

That’s just the right amount to hit Obama’s deficit reduction target.  All it requires is a 100% marginal rate for earnings over $350,000 (where the top bracket starts).  Not likely, right?

So, how will the deficit be cut?  By “scrubbing the budget line-by-line” to eliminate wasteful spending.  A cynic might say: yeah, just like he did on the pork-laden, non-stimulative plan.  Maybe he’ll pick up some loose change there.  (In fact, maybe that’s the change he’s been talking about)

Kidding aside, the inescapable conclusion is that tax hikes will start hitting everybody who currently pays taxes.  It would be political suicide for Obama to re-institute taxes on the free-riders — that train doesn’t have a reverse gear. 

The top bracket doesn’t have enough income to fund Obama’s wish list — even at a 100% marginal rate.  So, he’ll have no choice but to pare the shopping list  or break the “not a single dime” promise.

My money’s on the latter.

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Some facts sourced from:
http://www.ibdeditorials.com/IBDArticles.aspx?id=320369763494616

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This entry was posted on February 25, 2009 at 7:32 am and is filed under Obama - Promises Made & Kept, Taxes. 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.