Looking Out From the Garage: The ultimate income redistribution...

Bravo Lane! Very well stated. I simply don't understand how the polls are showing the two candidates running neck in neck when The tax & spender has plainly laid out his diabolical plan to kill an already wounded economy!

People need to get their heads out of the sand (or whatever other dark place they have it buried in) and THINK about the repercussions of Obama's policy plans!

I'll be keeping an eye on this post! Thanks!

Some Socialist Democracies, like Sweden and Denmark work very well. Of course the populations of these countries are far less than the USA, which may be a factor. You don't see Swedes and Danes leaving their country en masse.

Don't you think Social Security, unemployment benefits, welfare etc are "socializing our economy"?

Just a thought.

Let's break it down... and this is going to be lengthy, I apologize... (Also, mostly opinion.)

Ideally, nobody would pay any taxes. We don't live in an ideal world and there are going to be taxes, so there are two possible goals here:

1) Try to minimize the taxes paid (supposedly the GOP goal, more realistically libertarian, the GOP has been awful at this)

2) Try to maxmize the value provided for taxes paid (supposedly the DEM goal)

Neither of these is inherently "right" or "wrong" - if you were getting great value out of your taxes, you wouldn't likely complain a whole lot about them. The problem is that the government hasn't been very good at providing value for our money.

I'm a libertarian at heart, but I'm supporting Barack Obama in this election. He's a complete polar opposite from my standard views, but here's why I support him:

1) Health care: Obama's plan is not "government-run health care" but rather a way around the biggest scam in the health care industry: pre-existing conditions. Insurance companies routinely label diseases as "pre-existing conditions" and refuse insurance to those who want it - and can pay for it. Obama's plan ensures that everybody who wants health insurance can get it, but does not mandate it. (There is a mandate on insurance for children, however.)

2) Energy policy: Obama has a comprehensive energy policy that includes the one word Sen. McCain routinely leaves out: biofuels. A renewable, clean, domestic source of energy is essential for our nation moving forward. Offshore drilling will help, but only in the mid-term (starting in 5-7 years, and only minimally, for a limited amount of time). Biofuels are the answer, and only Sen. Obama seems to be on board. (Search McCain's energy page for "biofuel" - you won't find anything...)

3) Iraq: Guess what's expensive? War! Getting the troops out of Iraq means a significant ease on the budget.

4) Taxes: Oh my God tax-and-spend liberal SCARY!!!! Obama isn't your daddy's liberal. 95% of American citizens pay lower or equal taxes. 98% of small businesses pay lower or equal taxes. That hardly sounds like massive income equalization. How much will taxes go up for those making over 250k? The 33% tax bracket becomes a 36% tax bracket... the 35% bracket becomes a 39.6% bracket. All others remain the same. This is what they were in the 1990s (a time many consider to be one of economic prosperity). He's merely reverting two of the brackets to their pre-Bush levels. It's not the end of capitalist America.

Regarding income inequality and wealth distribution, I think we have a problem in the system. I'm opposed to wealth redistribution, I favor a fair system, but our system is far from fair. If you look at the percentage tax rate the extremely wealthy pay, it's often less than the middle-class rate. Why? The extremely wealthy can afford advisors to help them find loopholes. As a result, they end up paying less than what would be considered a "fair share". As a person who has a financial advisor, I know this from experience. You work the system.

The fact is... our country badly needs infrastructure enhancements and we require money to do that. We're running a deficit budget, and while many cuts need to be made, we need to bring in more money for that to happen. Our most successful period of budget-balancing in recent history came during the 1990s and Obama is suggesting a tax plan very similar to that. Bush's tax policy hasn't seemed to work very well - the deficit has increased from 5 trillion to 10 trillion in just 8 years...

Anyway, I've said more than my share, I'd love to know what *specific* of Obama's tax plan is so evil. You can find the full plan in PDF form here: http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf

For an interesting historical comparison, see http://www.ctj.org/pdf/regcg.pdf - note that Obama's top rate, the first non-date column, is 39.6%

Long term capital gains will be increased to 28% from the current 15%. It hasn't been that high since Carter was in office. Barack was wrong when he said it was that high when Bill Clinton was in office, it was really 20 percent, If you want to stop people from saving money and investing, just make sure to tax the crap out of it.

One of the ways he was planning to pay for all of his spending was by taxing the oil companies. OOPs, that's not going to work now, since the price of gas may be below $2.00 by the time he's in office.

From the PDF I posted:

"Capital Gains: Families with incomes below $250,000 will continue to pay the capital gains rates that they pay today. For those in the top two income tax brackets – likewise adjusted to affect only families over $250,000 – Obama will create a new top capital gains rate of 20 percent. Obama’s 20% rate is equal is the lowest rate that existed in the 1990s and the rate that President Bush proposed in 2001. It is almost a third lower than the rate that President Reagan signed into law in 1986."

So for anybody making under 250k a year, capital gains taxes are the same. That means that - for 95% of Americans - they can save money just the same as they used to. For those making over 250k a year, it tops out at 20%, which is significantly less than the 28% you mentioned. Where did you get that figure from?

In addition, small/startup companies will pay no capital gains taxes, further encouraging small businesses.

While gas may continue to drop, that's a temporary lull. The price of oil is going to trend up long term. However, a windfall profits tax on oil was only suggested as a temporary measure anyhow. Obama has stated that his spending will be covered by cuts in other programs. He's shifting money, not creating additional bottom line spending. His tax plan will actually bring in less money than the Reagan tax plan. Spending will be balanced by removing tax loopholes/tax havens for international corporations and eliminating tax breaks and subsidies for oil companies (not the same as taxing profits).

Tim -

You're completely overlooking the fact that Obama's plan removes the present ceiling on Social Security and Medicare taxes.  That's an immediate hit of 7.65%, or 15.3% for anyone who is self employed, on all income above the present ceiling of $102,000.

Jeff-

Good point, though not entirely true. From barackobama.com (on the Seniors/Social Security page):

"Obama does not support uncapping the full payroll tax of 12.4 percent rate. Instead, he and Joe Biden are considering plans that would ask those making over $250,000 to pay in the range of 2 to 4 percent more in total (combined employer and employee)."

So assuming it hits 4% and maintains the equal employee/employer split, that'd be an extra 2% (or 4% self-employed). That's a *significant* increase, I agree, but Social Security has needed help for awhile. I didn't include this amount because Social Security reform is independent of tax reform.

This might be a totally selfish way of looking at it, but I personally make less than $250,000. Barack Obama's tax plan helps me more than John McCain's... I see it as being in my own economic interest to vote for Obama. If you make more than $250,000, it'd be in your interest to vote for McCain, sure. (Unless, of course, you care about all the other issues that Obama differs with McCain on.)

I think if you go and actually read all the plans and PDFs on Obama's site, rather than simply listening to the pundits yell about it, you'll find that his plans are reasonable, moderate, and well thought-out. Just my two cents, of course.

Mark - Keep in mind that there are a lot of people who base their vote on how big a check the government will cut for them.  Most of those people vote Democrat. 

Deborah - Not so fast.  Both of those countries are facing increasing market pressures.  As most people figure out that they can do ok by not doing ok there... they are facing strains on their systems.  Previously they both had very limited population growth, and the demographics were stable.  Both countries have faced increased immigration (and still NOTHING like the immigration... even just the legal immigration in the US) in the last few years. 

Tim - We didn't have income taxes until almost WWI.  The government also didn't have much deficit spending.  I hate to be one of those "gold standard" people, but going off of the gold standard is when we introduced deficit spending in a big way. 

(first set of numbers)...

1) The GOP used to be small government, low taxes.  The religious right stuck their noses in and made it low taxes, diffferent government intrusion... but still not as much as the Democrats.  The GOP needs to get back to its roots as it did for a short time under the guidance of Newt Gingrich.

2) The Democrats have never tried to maximize the value of taxes paid.  Where are you getting that.  Since FDR, and even more so since LBJ, the Democrats have been the party trying to use taxes for social justice, increasing government and fixing any problem with federal spending.  If a lot of money couldn't fix it, then a whole lotta money might fix it.  If that didn't work, then a cubic butt-load of money could be the solution... and more union members. 

(second set of numbers)

1) The biggest scam in health insurance isn't pre-existing conditions.  It is a tie between"it is my companies responsibility to buy my health insurance" and "health insurance should cover everything instead of just covering unforseen events."  Add to that the increased governmental pressure to increase coverages, and the added costs for every medical procedure because of the layers of beauracracy in order to get paid from insurance, and you have an imperfect storm. 

I think that health care costs could actually be reduced by limiting health insurance.  For a period of about 3 months a few years ago I was uninsured when the company I was working for had a coverage lapse.  I, of course, figured that was the best time to get pnuemonia.  I went to my doctor (same one I went to previously) and told her I had to pay out of pocket.  When they found out I was going to pay then, the visit went from $75 to $30.  My co-pay had been $20.  They usually got $40 after three months of fighting.  I got a generic prescription for $25.  My co-pay would have been $8.  I was paying $100/mo. for insurance before that, and the company was paying another $300 on my behalf. 

Now, as a small business, my wife and I pay about $700/mo. for insurance.  Upon the birth of child 2, where the co-payment was $3,000, welearned that the insurance company paid $500.  Had we paid the full rate, and not negotiated, they would have charged us $9000 if not insured. 

There are a couple of things that could be done. 

• make major medical policies easier to come by...
• disconnect insurance from employers by making the rates depend on a limited number of demographics (age, sex, location)
• require providers to NOT charge more to uninsured people than they charge to insurance companies
• require providers to list the full rate for every service they provide. 
  

Of course you wouldn't sit down and plan out how much it would cost to get your leg set when you break it, but there would be PLENTY of consumer organizations that would publish ratings and values for every type of service. 

For most people, if they had a minimal coverage policy, that was reasonably priced, they could pay for service at the time of need and save money. 

2) Oil could start to flow in two years.  Not 5 to 7...  It would only take 5 to 7 to get some of the more exotic locations up to speed, like ANWR.  But bio-fuels...

There is a large and growing movement against bio-fuels.  Google "Food not Fuel".  Commodities like corn have been going through the roof.  Corn, soy, sugar and other stocks are not good for bio-fuels because they also feed people, feed livestock or compete on the farm with food-stocks.  The only exception to that would be post consumer bio-fuels, like WVO (waste vegetable oil) which is a form of diesel, and an exotic conversion that may soon come online in South GA (the process is escaping me right now, but I think Nicholas might be familiar with it). 

But until recently, Obama was again nuclear, drilling and coal.  Environmentalists are also fighting against hydro and wind (hydro may dam wild rivers, and wild kills birds/is an eyesore)... ask Ted Kennedy. 

The fact of the matter is that Obama has changed his positions on energy as he is directed by focus groups.  Sorry, but I don't think that focus groups are the way to build sound policy. 

3) War IS expensive.  But, sometimes NOT going to war is more expensive.  I do not agree with the way the war has been prosecuted, but the strategy that McCain championed, and Obama said wouldn't work IS working.  The US will be turning over Fallujah in the next couple of weeks to Iraqi security forces.  They have drawn down the US presence there dramatically since the surge.  This used to be one of the most dangerous areas in Iraq. 

So, the question is, is it more expensive to go to war with Iran or North Korea, or wait until they bring war?  There are reports right now that pirates that hijacked an Iranian cargo ship off Ethiopia started dying from something they were exposed to on the ship... not what they were expecting. 

4) Tim... I want to know where you came up with 98% of small businesses won't be affected by Obama's tax increase.  Just watching the news this evening, a small business advocacy group claims that 75% of small businesses with 10 or more employees WILL be affected and see increased taxes. 

Furthermore, those taxes will affect almost everyone in one or more ways... 

• fewer jobs/cutbacks

As businesses face increased costs, they will cut employees, not hire more people, offshore functions and in extreme cases, fail completely. 

• higher prices

If the cost of doing business goes up, the cost of the product is going to go up as well.  Simple economics... unless there is a strong presence by companies that didn't get a tax increase (like real estate agents, we're all poor).  But, prices WILL rise to one extent or another because of increased taxes. Even Obama has said this in the past.  When Hillary was talking about a "windfall profits tax" on oil companies, he said it would raise prices, and was a gimmick.  Apparently his focus groups have changed their minds.

• even less export competitiveness

We have the second highest corporate taxes in industrialized world.  Ireland is at what?  11%... we are at 36%, going to 39.6%.  Gee, kind of makes it hard to turn a profit in some cases against international competitors. 

While I agree that there need to be infrastructure improvements, I don't think it should ALL fall to the federal government.  In fact, I think that the vast majority should be funded by local governments.  User fees are another option. 

Jeeping is a good example.  OHV areas are often fee areas in the forest service.  Because of the usage we put on the areas (especially as they dwindle), they require more maintenance than other areas... but the fees that we pay are often diverted to non-fee areas.  Our user fees support the whole system.  And, as areas are closed off, and those revenues are lost, districts find that their budgets get smaller.  They lost a major expense, but they lost a bigger revenue generator. 

Let me hit the CapGains thing again...  Small businesses and start-ups pay almost NOTHING in CapGains.  That "cut" is a phantom.  It isn't going to spur investment because it isn't a consideration. 

 

Finally, he isn't "shifting money" he is proposing new programs.  And he proposes a new one every day.  He wants to spend $1trillion more than the current budget.  In effect, he wants to spend 10x as much as we are spending in Iraq each year.  And, since the CBO uses a model called "static scoring" his numbers are going to end up WAY off. 

If you go back a few years, the CBO was calling for giant deficits under the Bush tax cuts... then revenue increased dramatically.  Of course, the GOP started spending like drunken sailors (which is NOT fair to the reputation of drunken sailors), and despite the fact that taxes kept going down, revenues kept going up. 

In the case of the Obama tax increases... revenues will go down.  Spending will go up.  He won't get close to balancing a budget... and then he will say that he needs to let the Bush tax cuts expire for more people... expect that if you pay taxes now, you will pay more... and the revenue will still go down. 

Larry - I haven't forgotten you my friend.  Gas could go down as demand drops from the worldwide economic issue.  And the oil companies can't afford to carry all of Obama's water... without raising prices in a big way.

Tim - Looking at your last post, I have a thought.  Let's just tax 99% of everything over $1,000,000.  It won't affect any of us.  Think it would hurt the majority of the population?  Think the Obamajority would go for it?

Lane-

Too much for me to respond to all of it, let's hit the major points...

1) Ireland taxes at 11% / We didn't have income taxes until 1916

The United States is neither Ireland nor an early 20th-century nation. You're comparing apples to oranges. Somalia might tax at 2%, but that doesn't mean it's a good idea.

2) On biofuels: corn is passe. My biofuel of choice is algae-based. It actually uses up more carbon in production/burning than it puts off by a significant amount. It requires about 1/100th the land space as corn biofuel. See this chart: http://gas2.org/files/2008/05/biofuels_compare.gif

Biofuels ARE the answer.

3) The "1 trillion in new programs" figure is $860 million from the McCain camp but DOES NOT take spending cuts into account. Is it "new spending" ? Yes. But Obama insists on matching cuts. See this report from CNN: http://politicalticker.blogs.cnn.com/2008/09/29/fact-check-is-obama-proposing-860-billion-in-new-spending/

4) "Let's just tax 99% of everything over $1,000,000." Comments like this simply distract from constructive debate. The tax numbers Obama is proposing are a rollback to 2000 tax levels for the top two brackets, ABSOLUTELY NOTHING NEAR a super-tax on the rich. Come on, get real. Also, see Cindy McCain's tax returns: 1.1MM on 4.2MM, or 26% taxes. Obviously the super-rich are getting by at a relatively low tax rate, I think I paid around 30% last year...

5) Sure, maybe 75% of small businesses with more than 10 employees will see taxes go up. That's because most small businesses are less than 10 employees. That's just manipulation of statistics to try to prove a point. My parents have a "small business" with about 40 employees. They just bought a $600,000 house. They'll be fine paying a few percent more, believe me...

Simply saying "Obama won't balance the budget" doesn't make it true. You want to debate policy, let's do it, but source your information and stop feeding me Fox News talking points.

Obama's going to change...Obama's going to change the world!

Lane - another excellent post! But a very excellent video! I saw Rush live a few years ago and they can still rock! Anyways, how about we scrap the income tax and go for a consumption tax? The people that have the most, spend the most, pay the most - with a refundable cap, say the first 35k... A few years back there was some talk of this and I liked it. No cheating, no loopholes and a very tiny IRS.

 

 This article, from today's Wall Street Journal, titled, "A Liberal Supermajority - Get ready for 'change' we haven't seen since 1965, or 1933", should be read by all, and shared with everyone you know!  Here's the link - http://online.wsj.com/article/SB122420205889842989.html?mod=rss_opinion_main

Tim - Here you go... 

1)  You are right that it isn't 1916...  But on Ireland you are VERY wrong.  They had high unemployment, soaring deficits, shrinking tax base.  And then they lowered their corporate taxes.  Unemployment went down faster than undies in a Bill Clinton Oval Office.  Revenues SOARED.  Their currency strengthened.  Standard of living went up. What is the problem with that?

2)  Ethanol and Algae are both listed as having high energy requirements to make,  I know in the case of corn ethanol, it actually takes more energy to manufactur and distribute than it creates... hence the requirements of subsidies.  If algae can produce more energy than it takes to make, I'm cool with it.  Personally I want to brew bio-diesel in the garage for my F-350... but space is stopping me.  I think that bio-fuel is cool, but right now there is no technology that can scale even close to a level that would make a dent in our energy needs. 

3)  $860 Billion, not million.  And that doesn't include the new programs he announces as fast as the focus groups can spit them out.  And again... static v. dynamic budget scoring.  Under the CBO model, tax cuts reduce revenue, but each time tax cuts have been deployed, revenue went up.  Tax increases on the other hand drive down revenue after the first year.  Simply put, you can't "pay" for new spending with a tax increase.  In order to balance the budget, spending has to be CUT. 

4)  Funny thing... the Super Rich and the Really Super Rich, according to the Wall Street Journal favor Obama.  The thought is that between the wealth they have built and the amazing teams they have mitigating their tax liabilites, Democrat tax increases don't affect them.  these are people that make $10m+ and $100m+.  Of course, I am thinking in the case of Buffett, he has figured out that he might be able to pick up some really good bargains after an Obama Presidency. 

5)  Ok, how about if we put it this way...  Small businesses that are likely to grow jobs would be adversely affected by Barack Obama's tax increases.  I don't care about the guy that races on the weekend and has a "race team" in order to write off some expenses... but I AM concerned about a Mom & Pop store with 15 employees where they are busy hiring people and creating jobs. 

6)  Obama ran for the Senate stating that he was going to deliver a middle class tax cut.  We both know that a junior Senator can't do that alone.  But, 4 years later he never sponsored, co-sponsored or voted for a middle class tax cut.  Knowing that, and knowing that his story has changed between the primaries and now, and between the convention and now, why are you so sure he will deliver on everything he says? 

I'll be bold and tell you that if you make over $75k, you will NOT see a tax cut from an Obama Administration.  After the Bush tax cuts expire, and you taxes go up (if you pay taxes, they will go up when the Bush cuts expire), there might be cuts for the very bottom to remove more people from the tax rolls... but it won't extend to everyone else.  Shortly after he gets in office, he is going to have a sit down with the American people and tell them that it is worse than he thought, and that everyone needs to tighten their belts so that we all can get through this. 

Also keep in mind that Clinton's Tax Cut that he promised in 1992 didn't happen until the GOP took over Congress... and IIRC, he still wanted to veto it, but figured out that it wasn't going to go well for him if he did.

Nicholas - change is coming... 

Susan - FairTax.  that is what you are looking for.

Jeff - I think it could happen.  And it could take a generation to undo... or it could take a new revolution.

Coming from Socialist Britain I can tell you that those doing well (not rich!!) are paying 40% income tax. On top of that they are paying 11% national insurace (yes, that's the free healthcare!) and then there is 17.5% sales tax on EVERYTHING!

Lane ~

Congratulations this post is now featured in the Silent MajorityGroup of Active Rain.

Lane,

I agree with your bold prediction that if elected Obama will go back on his tax plan. 

I also do not see energy as being a top priority of his either and just is another promise that he knows the people want to hear.  If you look at the first debate when the candidates are ask which one of their proposals they will have to delay due to current state of the economy Obama answered energy.  I honestly believe that energy will be McCain's top priority, hence his VP choice.

Michelle

Lane - don't see enough of you on the politics blogs but you do a great job and this one is very well supported. I think you have to discount 80% of what the candidates are promising as either outright lies told to garner votes or things they really hope to do but won't be able to because the economy is going to consume most of their time and resources. While bio-fuels might be cool, nuclear is the answer to our domestic energy needs to generate power - Obama won't touch that and that's a major failing of his energy policy. I believe his impact on the small business class will be very detrimental to the economy and to job creation. The 'redistribution of wealth' thing scares the hell out of me. The expansion and encroachment of government into yet more areas of my life makes me crazy. I've written about the consequences of a tax & spend executive combined with a tax & spend legislature - all we have to do is look to California. People should be very worried right  now.

Simon - One day I hope people learn that free isn't free... 

Michelle - I see Obama running much the same as Bill Clinton... looking at polling data and making his policy based on what would be popular. Not right... but popular.

Gene - And here I thought I was writing too much political stuff...

How can you give a tax cut who have no tax liability. 40% of American tax payers don't pay taxes. To punish those who are successful, is going to drive this economy into a Depression. Michigan will be the example of America when the liberals take over, liberals took over in Michigan and look what they did. Obama is taking the same tax plan, and giving it to all Americans. Brilliant, innovative...absolutely...wrong!

I'm really annoyed that the bold is now stuck on... 

Nicholas - It is kind of funny.  The governor in MI said what Obama is saying and that thwould have more money available after raising taxes to use for "relief" for those adversely affected by economic turmoil.  It seems that there was a miscalculation.  Of course, the media doesn't seem interested in letting people know about that.  I hope that Obama doesn't send us into a depression. 

The other problem is that Obama will try to claim that anything bad that happens is the fault of Bush.  No matter what.  Even he unwillingness to admit that the surge is working is so that he can say the military lost Iraq, not him.

Lane...your right on the money with this post.  The reality is the goverment is losing TRILLIONS and Trillions, and it's not just being spent.  In other words, you don't give unproductive people FREE money.  Why give earned income credits.  What they should do is get rid of gasoline taxes and the various hundreds of "fee's" and other taxes the average "poor" income earner pays each day.

You tax corporations and they pass it on to consumers. It's happened for years and will continue until these idiot's in Washington finally get it.

That's why FLAT TAX advocates make so much sense.  And why do people think the TRULY RICH really pay their fair share anyway.  The number of tax free vehicles they can stash their money is incredible, but inaccessible to the average Joe middle class American.

Again, Obama or McCain, the middle class get's the royal screw!

Karl - I'm not a fan of "earned income tax credits"... they are NOT for earned income... 

Washington CAN'T "get it" and change the simple fact that corporation are going to pass their expenses to consumers, including taxes.  That is simply the way business is conducted. 

Flat Taxes on income are better than the "progressive" taxation system... BTW, the official taxation system of Karl Marx... but a consumption based taxation system makes MUCH more sense than production based taxation.