On Obama’s economic and tax policies
Hundreds of economists (including Nobel Prize winners Gary Becker, James Buchanan, Robert Mundell, Edward Prescott, and Vernon Smith) have signed letters opposing Barack Obama’s economic and tax plans (here, here, and here):
We are equally concerned with his proposals to increase tax rates on labor income and investment. His dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans. His proposals to increase income and payroll tax rates would discourage the formation and expansion of small businesses and reduce employment and take-home pay, as would his mandates on firms to provide expensive health insurance.
After hearing such economic criticism of his proposals, Barack Obama has apparently suggested to some people that he might postpone his tax increases, perhaps to 2010. But it is a mistake to think that postponing such tax increases would prevent their harmful effect on the economy today. The prospect of such tax rate increases in 2010 is already a drag on the economy. Businesses considering whether to hire workers today and expand their operations have time horizons longer than a year or two, so the prospect of higher taxes starting in 2009 or 2010 reduces hiring and investment in 2008.
Seems like Obama needs to discover Economics 101. From an earlier series I did in 2006, excerpting thoughts from other leading economists:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
Part X: The Power of the Market
Part XI: Prices
Part XII: I, Pencil – A Story about the Free Market at Work
Part XIII: It is Individuals – Not the Society, Government or Market – Who Think & Act
Part XIV: On Equality
Part XV: Consequences of Price Controls
Part XVI: The Ethics of Redistribution
Part XVII: What Does “Social Justice” Mean?
The Wall Street Journal’s editorial entitled Obama’s 95% Illusion: It depends on what the meaning of a ‘tax cut’ is:
One of Barack Obama’s most potent campaign claims is that he’ll cut taxes for no less than 95% of “working families.” He’s even promising to cut taxes enough that the government’s tax share of GDP will be no more than 18.2% — which is lower than it is today.
It’s a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he’s also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of “tax cut.”
For the Obama Democrats, a tax cut is no longer letting you keep more of what you earn. In their lexicon, a tax cut includes tens of billions of dollars in government handouts that are disguised by the phrase “tax credit.” Mr. Obama is proposing to create or expand no fewer than seven such credits for individuals…
Here’s the political catch. All but the clean car credit would be “refundable,” which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer — a federal check — from taxpayers to nontaxpayers. Once upon a time we called this “welfare”…
There’s another catch: Because Mr. Obama’s tax credits are phased out as incomes rise, they impose a huge “marginal” tax rate increase on low-income workers…the marginal rate for millions of low- and middle-income workers would spike as they earn more income.
Some families with an income of $40,000 could lose up to 40 cents in vanishing credits for every additional dollar earned from working overtime or taking a new job. As public policy, this is contradictory. The tax credits are sold in the name of “making work pay,” but in practice they can be a disincentive to working harder, especially if you’re a lower-income couple getting raises of $1,000 or $2,000 a year. One mystery — among many — of the McCain campaign is why it has allowed Mr. Obama’s 95% illusion to go unanswered.
From The Corner:
The Democrats want another round of tax-rebate checks, in addition to the $100 billion in tax-rebate checks that went out last spring. Democrats are essentially conceding that tax cuts are good for the economy, but they are opposed to the kind of long-term tax relief workers and businesses can count on. They’d rather confiscate your money first, so they can take credit for giving it back. Viewed in this light, it is appropriate that so much of Obama’s tax plan consists of “tax credits.”
Ed Morrissey writes, “Put it this way: does it cost more to take money from taxpayers and then pay bureaucrats to filter it back to us, or just leave it in our pockets in the first place?”
This is economic amateur hour, all at the expense of small businesses and American families.
Listen to this. It’s called socialism.
More on Obama’s exchange with the plumber here.
More on Obama’s “spread the wealth” statement and a history of taxation in America, including who pays how much right now.
Philip Klein writes about Searching for Obama’s 95%:
…It’s a claim that the Wall Street Journal editorial board dubbed “Obama’s 95% Illusion,” noting that more than a third of Americans don’t pay any income taxes, and that what Obama’s plan does do is offer a raft of subsidies and government payments to individuals and families that he redefines as “tax cuts.” His proposal looks more like a redistribution scheme than an honest effort to reduce taxes — as he revealed on Monday when he told a now famous Ohio plumber that his plan aimed to “spread the wealth around.”
So when Plouffe reiterated the 95 percent claim, I asked him a simple question aimed at clarifying whether Obama’s tax plan was about cutting rates, or merely handing out government checks. “What rates would actually go down”? I asked.
“Middle class people are going to see, systemically, their taxes reduced, and small businesses,” Plouffe responded.
“But what rate would go down for lower-income Americans?” I persisted, seeking more information.
“We’ll have to get you the exact details on that,” Obama’s campaign manager told me.
I followed up, recapping the claim he had just made moments ago: “Well, you said that there’s going to be a tax cut on 95 percent, so what rate would go down?”
He replied, “I’ll have to get you the exact rate differential.”
Given that he wasn’t clear on the actual rate changes involved, I asked, “but which type of tax would go down?”
He insisted that under Obama’s plan, income taxes would be lower, as well as capital gains taxes on start up businesses and small entrepreneurs (though the capital gains tax would otherwise increase)…
In fairness, politicians long ago began to use the tax code as a tool for crafting social policy rather than merely as a way to raise revenue. Republicans and Democrats alike have abused terms such as “tax credit” and “tax rebate” to make their policy goals more palatable. But Obama is getting away with defining tax cuts so broadly, that future candidates will simply claim any form of increased government spending as a tax cut…
If Barack Obama can effectively claim that his plan cuts taxes on 95 percent of Americans, then the term “tax cut” has no meaning.