Obama’s Plan for the Economy (part 2)

In this section of his economic plan, Obama lays out his tax cuts for working families.  The first thing I want to point out is the irony of claiming that people who earn the most money somehow are not “working families.”  THEN WHAT THE HECK ARE THEY?!?!?  Anyway, on to his policies…

Plan to Provide Middle Class Americans Tax Relief

  • Provide a tax cut for working families.

OK, his plan in this section hits one of my pet peeves.  He claims his plan, “…will restore fairness to the tax code…”  OK, I am still trying to get the concept of “fair” explained to my four-year-old son, so I will take the same approach here.  If the same thing happens to everyone, that is fair.  If one person has something bad happen to them while another has something good happen to them, that is unfair.

Our current tax system is UNFAIR.  The top marginal tax rate is currently 35%.  The lowest tax rate is 10%.  Millions of people in the lowest couple of tax brackets end up paying no tax whatsoever, and because of refundable credits, they actually are paid money by the government.  By contrast, the typical American family has to work from January 1st until April 23rd just to pay Uncle Sam.  This is known as Tax Freedom Day.

A “progressive tax” like the income tax penalizes success; the more you make, the more they take.  While progressive taxes may be viewed as “fair” by those who want to redistribute wealth to those that have not earned it, it nevertheless falls under the definition of unfair I gave to my son.

The opposite of a progressive tax is a “regressive tax.”  A regressive tax taxes people more who have less.  Liberals love to claim that sales taxes on food are regressive.  Now, if you and I each go to the store and buy the same amount of groceries, we pay the same amount in sales tax.  How is this regressive, you ask?  Well, if I make half as much as you, then each dollar of sales tax I pay represents twice the percentage of my income as it does relative to your income.  However, the definition of regressive tax does not make any reference to percentages of income.  If there were any regressive taxes in the U.S., these would also fall under my definition of unfair, but to the best of my knowledge, there aren’t any.

In between progressive and regressive taxes are “proportional taxes.”  These taxes are a fixed percentage, like the sales tax example given above.  If a proportional income tax were implemented, everyone would pay the same percentage of their income as everyone else.  In my book, this is the only kind of tax that does not penalize success.  This tax is also the only one that fits my definition of fair.

All of that is a long way of getting to why I don’t think Obama’s “Make Work Pay” tax credit is “fair.”  By his own admission, it would only cut taxes for a portion of “working families” and would result in no taxes being paid by an additional 10 million people.

Remind me later to tell you the Halloween analogy.

  • Create the American Opportunity Tax Credit.

Now Obama wants to provide a $4,000 refundable tax credit for college tuition.  I have two main problems with this:

  1. Refundable credits are paid to people meeting the criteria even if they do not have to pay any taxes. This means that for low-income people, this turns into taking money away from successful, hard-working families and giving it to those that have not earned it.  There is no mention in his proposal as to whether the recipients would have to actually pass their classes nor a cap on how long they could go on receiving this credit.
  2. The government owns you.  The requirement is that each person receiving this credit “…will be required to conduct 100 hours of public service a year, either during the school year or over the summer months.”  OK, in my case (I am an independent PhD student), this means that I would do some form of community service over the summer, when (in theory) I am not in school.  However, if I were an 18 year old freshman still being claimed on my parents tax return, does this mean that my mom or dad would have to work an extra hundred hours in free labor to pay for my tax credit?  And don’t drunk-driving offenders often get less community service than that?
  • Expand the Child and Dependent Care Tax Credit

My main beef with this is that they want to make it refundable, but have it only pay up to 50% of the first $3,000 of care expenses.  Why not leave it non-refundable, and make it cover 100% of the first $3,000?

  • Simplify Tax Filings for Middle Class Americans

In theory, I have no problem with this, except make it simpler for ALL Americans; I loved Steve Forbes’ idea of a flat tax with a postcard-sized tax form.  However, in practice, this sounds like a nightmare.  His suggestion is to have the IRS prepare your taxes for you.  They would send you pre-filled-out forms for you to sign and pay.  “Experts estimate that the Obama proposal will save Americans up to 200 million total hours of work and aggravation and up to $2 billion in tax preparer fees.”  OK, but how many extra staff will the IRS have to employ to make sure the forms are filled out, stuffed in envelopes, and mailed to us?  How much will all those stamps cost?  How many hours will they have to work to customize approximately 150 million tax forms?  How will we know they are accurate or filled out in the way that results in the lowest legal tax burden to us?  How much will all of those extra government salaries cost us?  I am betting more than $2 billion.

  • Eliminate Income Taxes for Seniors Making Less than $50,000

Let the pandering begin!  Oh wait.  The wording on this one is confusing.  He claims that this plan will result in 7 million seniors not having to pay taxes.  But then, he states “…27 million American seniors will also not need to file an income tax return.”  Does this mean that 20 million seniors will owe taxes, but not have to file a return?  How would they know how much they owe?

Also, note that in his proposals, he has now estimated that 17-37 million more people will not be paying any taxes.  So who will be paying for all of these tax credits and new programs Obama is proposing?  Oh yeah, that is the part he left out of his tax plan: the tax increases on those already paying the most taxes!  The top 1% of income earners already pay 39.4% of the total tax bill, despite the fact that combined they only make 21.2% of the nation’s income.  In fact (if you care to pick one of the many numbers Obama threw out on the campaign trail), if he only raises the taxes of the top 5% of income earners (who currently pay nearly 60% of the taxes), he will have to raise those taxes significantly just to make up for all the tax cuts and credits he has proposed.

The Halloween Analogy

I know, you thought I forgot about this.  I wanted to save it til the end because it sums up my dislike for the “redistribution of wealth” aspect of Obama’s whole tax plan.

Imagine if you will that you are taking your kids (or grandkids) trick-or-treating on Halloween night.  As you approach a door, a teenager, who claims his costume is that of a teenager (i.e. no costume at all), approaches the same door.  As you wait for the homeowner to answer, you notice that the teenager doesn’t have any candy in his bag; by contrast, your kids have been at it for a couple of hours and have quite a bit of candy.  When the homeowner opens the door, he glances into everyones bag.  Without saying a word, he then reaches into your children’s bags, takes out 1/3 of their candy, and dumps it in the teenager’s bag.  He then smiles at you and tells you that your children could afford to give more to support those that don’t have enough.  Gut check time…how would you react?

This is precisely what the government is doing and what Obama plans to vastly expand.  I am not saying I don’t sympathize with the poor (heck, right now I am one of them), but this country was founded on equality: equality of opportunity, not equality of outcome.

I end with the creed of Dean Alfange:

I do not choose to be a common man.  It is my right to be uncommon.  I seek opportunity to develop whatever talents God gave me — not security.  I do not wish to be a kept citizen, humbled and dulled by having the state look after me.  I want to take the calculated risk; to dream and to build, to fail and to succeed.

This is the spirit of American free-enterprise, and something our government should not seek to stifle.

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Published in: on November 12, 2008 at 1:35 am  Comments (1)  
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Obama’s Plan for the Economy (part 1)

The first plank in President-Elect Obama’s plan for America is his policy on the economy.  This is hardly surprising given that this was the foremost concern of most Americans going into the election.  Let’s take a look at his plan as found on pages 7-15 of his Blueprint for Change.  I will adress each point in a separate post.

Emergency Economic Plan

  • He proposes to impose a “windfall profits” tax on America’s oil companies in order to give every American family $1,000 to pay for the rising cost of their bills.

While getting $1,000 sounds good, let’s think about this for a minute.  My bills (and I am guessing it is the same for most Americans) come in every month.  A one-time check from the government is unlikely to get spent on my recurring bills, and will not be put in savings to offset the “rising bills” that will come in over the next several months.  Think about the “Economic Stimulus Check” you may have received under the Bush administration…did you use it to pay bills or to buy something you wanted but hadn’t been able to afford?

Now lets look at the source of his funding for these checks, the “evil” oil companies.  I swear that the only industry in America more villified than the oil companies are the tobacco companies!  In this country of supposed capitalism, oil companies are allowed to spend money exploring for oil (a risky investment to begin with) only to be told that Congress will not allow them to actually extract the oil they do find (which would have allowed them to recoup the cost of the exploration).  In addition, Congress will not allow new refineries to be built in the US, which means that oil that is produced here must be shipped overseas to be refined into gasoline, then shipped back to the US for consumption.  All of this drives up the cost of producing a gallon of gas.

In a June 2008 interview with CNN, John Hofmeister, the President of Shell Oil (the American arm of Royal Dutch Shell), pointed out the following fact:

Look at our revenues and our income for the last quarter. If we had made $7.8 million on $114 million of revenue, nobody would call that excessive, because that’s 7½ percent. We made $7.8 billion profit on $114 billion revenue — same 7½ percent. So to me that is not an excessive number when banks and pharmaceuticals and IT companies earn a whole lot more.

I am so tired of the notion that because a company or an individual is successful they must be punished with confiscatory taxes.  If we assume that gas was at a national average of $3.50 per gallon during the June interview, and if we assume that the average state and federal taxes imposed on consumers for each gallon of gas is $0.47 per gallon, that means that while Shell made $7.8 billion during that quarter, the governments (federal and state) took in $15.3 billion just in sales taxes (nearly $6 billion of which went to the federal government)!  For its profit, Shell had to pump the oil out of the ground, refine it, transport it, and sell it.  What did the government do to earn its share of that money?  NOT A DARN THING!  And that figure doesn’t even begin to include the amount of corporate income taxes, payroll taxes, environmental fees, lease payments to the Department of the Interior for any federal land they may be drilling on, import/export tariffs, etc that they have to pay to various governmental agencies.  But now the government wants to confiscate even more from successful businesses.  Oh, and let’s not forget that Shell has an obligation to continue to turn a profit for its shareholders and the economy in general (remember when the automakers reported their losses last week?  The Dow dropped by 10%).  So what will they end up doing if the government takes a bigger bite out of their profits?  You guessed it — increase the price of gas for us consumers.  This ends up being just another one of those “rising bills” the Obama administration was trying to help us with.  Oh well, just another vicious cycle of the government creating a problem, then making it worse by trying to solve it.

  • Provide $50 billion to turn the economy around and prevent 1 million people from losing their jobs.

First of all, there are no sources for his statistic that 1 million people may lose their jobs.  Second, the jobs he seems to be talking about are government jobs which, last time I checked, are notoriously hard to lose or cut.  Third, he is talking about subsidizing health, education, and housing (which the federal government has no constitutional authority to fund in the first place) as well as transportation (which it does have the authority to fund under the Interstate Commerce clause of the Constitution).  And finally, the United States has a Gross Domestic Product (GDP) of $14.3 trillion, so how is $50 billion (only 0.3% of the GDP) going to “turn the economy around”?!?  President Bush couldn’t do it with a $700 billion bailout.  There is also no mention of where the $50 billion would come from to pay for these programs.

Published in: on November 10, 2008 at 2:20 pm  Comments (2)  
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