Friday, October 31, 2008


It's really disappointing that the McCain campaign isn't doing a better job exposing Obama's economic plans for the sham that they are. They should be pointing out wherever they can that raising taxes, particularly during an economic slowdown, is a recipe for failure. Spending money you don't have compounds the problem. I call this 'wishonomics' because you have to wish that economic realities don't exist in order to believe it will work.

Obama wants to raise taxes on dividends and capital gains. History has shown that when you raise these taxes you get less revenue. Obama knows this, but is on record as saying he doesn't care. He will do this to impose his notion of 'fairness'. Raising taxes on investment will result in less investment, or misallocated investment. Instead of investing in higher risk, perhaps a new business or idea, investors will stick with safer investments. Capital which has gains, will stay locked up as people avoid paying the higher tax rate in the hopes that down the road saner heads will prevail. The net effect of raising taxes on dividends and capital gains is to reduce revenue to the government at a time when it will certainly be needed, and to reduce investment in productive economic activity, again, at a time when we desperately need it.

Obama also wants to raise taxes on people earning over $250,000. IRS data shows that the majority of individual filers who report income over $250,000 are actually people who own businesses and are reporting business income on their personal return. Raising rates effectively reduces the amount of money that these business owners can use to invest in making their business grow. Small businesses are the largest employers and hurting them seems counter productive. People who cheer the idea of making the rich 'pay their fair share' should realize that they are simply shooting themselves in the foot. People like to mock 'trickle down' economics, but the simple fact is that if you hurt the ability of small businesses to grow, by reducing their access to operating capital, you will cause businesses to either fail or grow slowly or not at all.

In the face of a recession, where tax revenue will naturally decline, and with the almost certainty that his tax policies will futher reduce revenue, Obama then proposes spending even more money than Bush. Everywhere he appears, he is promising that he will have a refundable tax credit for this, that or the other thing. If these promises are kept, all that will be accomplished is an explosion of debt. I really fear that we are entering a period very similar to the 1930's. I don't think we will go into a deep depression, but I feel that the poor economics of our current president (playing the role of Herbert Hoover) will lead to the election and destructive policies of Obama (playing the role of FDR). I expect that there will be plenty of stupid laws passed and further restrictions of freedom that will take decades to repair.

Tuesday, October 21, 2008

Is it a tax or forced savings?

When the subject of taxation is brought up, particularly in who shoulders the most burden, defenders of Obama's tax plan like to claim that it is the lower and middle classes who have the tax burden, and those in the top 5% who aren't paying their 'fair' share. This flies in the face of the facts which clearly show that those making over $250,000 pay a far greater share in federal income taxes than do the remaining 95% of earners. Ah, but this excludes the payroll tax, say Obama's supporters. When you factor in that regressive tax, things change.

So here's my question. For years we've been told that the payroll tax, i.e. FICA, is going to fund Social Security and Medicare. Social Security is continually sold to us as a form of retirement savings. Social Security payments are made in a decreasing proportion to the amount of money collected from payroll taxes over an employees working career. Those who make less and paid in less, receive a higher percentage payback than those who earned more and paid in more. So, if people are getting a retirement benefit based on their 'contributions' to Social Security via FICA, doesn't that mean that FICA isn't really a tax? Isn't it more of a forced savings plan? If so, then we certainly shouldn't be counting FICA as part of a persons tax burden any more that we should be counting any savings the person makes as a tax burden.

On the other hand, if people want to claim that FICA is a tax, then let's admit that Social Security is nothing more than a welfare program and simply eliminate it. If we want to keep the payments, have them come from the general fund. Eliminate the payroll tax entirely. At least then we might be able to have a rational discussion about true tax burden, rather than having FICA muddy the waters.