This was originally posted July 30, 2008 as the Presidential campaigns were heating up … and has recently been one of the Homa Files most popular posts.
Since it’s particularly relevant during the current deficit debates… here it is again…
* * * * *
A few years ago I stumbled on a Dogbert cartoon. At the time it made me smile.
Today, the cartoon makes me nervous — very nervous.
Of course, the source of my angst is the Obama tax plan. But, my specific concerns aren’t the ones that most pundits dwell on.
* * * * *
Buying Votes
True, Obama did hijack Dogbert’s campaign strategy and plans to raise tax rates on the top 3% of income earners (individuals and couples earning over $250,000 annually) and to redistribute the “savings” via a new tax credit of $500 per person, or $1,000 per working family.
Cynics point out that in the good old days, Mayor Daley’s Chicago political machine could deliver a vote for a the price of a pack of cigarettes. Apparently the price of a vote has gone up more than the price of gasoline. At least votes are now “marked to market”. The Obama plan clearly sets the price at $500 (cash) per vote, with a perpetuity value of about $10,000 @ 5%.
* * * * *
Buying Old Folk’s Votes
And, Obama promises zero Federal taxes for seniors over 65 on income up to $50,000 .
Mark Penn, Hillary Clinton’s former chief strategist says: “The Obama camp hit a bull’s-eye with this proposal, which has little economic justification but is great politics.”
http://www.politico.com/news/stories/0708/12117.html
* * * * *
Upping High Bracket Marginal Rates
In a WSJ op-ed, Stanford economics professor Michael Boskin opines that despite the rhetoric to the contrary, Obama’s increases don’t just hit “rich” individuals. They also impact lot of small businesses and two-earner households in high cost-of-living areas.
Specifically, Obama would raise the top marginal rates from 35% to 39.6%, increase the tax rate on capital gains and dividends, and uncap Social Security taxes (which currently are levied on the first $102,000 of earnings).
When payroll and state income taxes are thrown in, Boskin estimates that the high bracket marginal rate goes to over 60% – with almost $2 of every $3 earned at the margin, going to the government for services and redistribution.
click to make table bigger
http://online.wsj.com/article/SB121728762442091427.html?mod=opinion_main_commentaries
* * * * *
Redistributing $131 Billion Annually
An analysis done by the Tax Foundation — a self-proclaimed non-partisan think tank – indicates that Obama’s plan — as proposed — would redistribute about $131 billion each year. Taking money from the undeserving rich, and giving it directly to the financially besieged middle (and lower) class).
- Source: Tax Foundation – Tax Policy Center Estimate
“Hard Numbers on Obama’s Tax Redistribution Plan
http://www.taxfoundation.org/publications/show/23319.html
* * * * *
My POV
1. On a philosophical level, I agree that the grossly uneven distribution of earning power in the US is a serious problem that needs to be fixed.
2. But, I don’t think that the problem of income inequality should be fixed via a tax system — which was originally intended to “tax & spend” efficiently on necessary common services — not to “grab and redistribute”. Direct transfers from one citizen’s pockets to another’s (e.g. refundable tax credits) are certainly the latter.
3. Except for the impact on small businesses, I can’t get too riled over marginal rate increases that start at $350,000; but I do think a “doughnut hole” payroll tax schedule is wacky and I think raising capital gains taxes during an economic slowdown is dangerous.
4 . My real issue: The numbers say that in Obama World, a minority of voting age Americans will be paying income taxes. That scares me. What’s to stop an income tax-free majority from continually voting to raise taxes on the tax-paying minority to fund an ever increasing potpourri of benefits or add to the redistribution pot.
The Homa Files 
July 12, 2011 at 10:35 am |
I agree with your analysis and your conclusions, but I’d put a slightly different spin on things. I do not believe that wealth has concentrated itself through natural market forces. It has been concentrated through the conscious decisions of management and investors that have grown too greedy. It seems rational for voters to threaten higher taxes if pay does not rise. What other leverage do they have?
I think the real tension is between small business and big business. Picking up your point about campaign finances, small business has no representation in Washington. We get all the lip service, but none of the benefits. The big guys use this representation to create boundaries to entry.
Most of us use home equity or bank loans to start our businesses. Hearing people scream for Obama to stop supporting home prices and to stop adding liquidity to the credit system makes me sick to my stomach. Especially when they do it in the name of small business.