T Nation

Investors: Obama Should Keep The 'Change'


#1

A great article that really does a great job of picking apart Opies tax policies. It floors me that the country does not see what ill effects his tax policies will have on both small and big business. But hey, he's just trying to be "fair", and "spread the wealth". Good grief.

Business, both large and small, will suffer under Opies administration. Perhaps by "spread the wealth", Opie meant for our business capital to be sent overseas, to countries with a more advantageous corporate tax policy?

Investors Flee From 'Change' Obama Hypes

By JACK KEMP AND PETER FERRARA | Posted Monday, October 27, 2008 4:30 PM PT

Are Barack Obama's proposed tax increases adversely affecting our financial markets? We say yes, unambiguously. The senator has done a masterful job distracting attention from his tax increases with his $500-per-worker tax credit supposedly for 95% of Americans.

Obama has also set forth more than half a dozen additional refundable income tax credits targeted to low- and moderate-income workers for child care, education, housing, welfare, retirement, health care and other social purposes.

These tax credits are devised to phase-out based on income, which will ultimately increase marginal income tax rates for middle-class workers. In other words, as you earn more, you suffer a penalty in the phase-out of these credits, which has the exact effect of a marginal tax rate increase. That harms, rather than improves, the economy.

With the bottom 40% of income earners not paying any federal income taxes, such tax credits would not reduce any tax liability for these workers. Instead, since they're refundable, they would involve new checks from the federal government.

These are not tax cuts as Obama is promising. They are new government spending programs buried in the tax code and estimated to cost $1.3 trillion over 10 years.

Obama argues that while these workers do not pay income taxes, they do pay payroll taxes. True, but his planned credits do not involve cuts in payroll taxes. They are refundable income tax credits designed to redistribute income and "spread the wealth."

Meantime, Obama has proposed effective tax increases of 20% or more in the two top income-tax rates, phasing out the personal exemptions and all itemized deductions for top earners, as well as raising their tax rates.

He wants a 33% increase in the tax rates on capital gains and dividends, an increase of 16% to 32% in the top payroll tax rate, reinstatement of the death tax with a 45% top rate, and a new payroll tax on employers estimated at 7% to help finance his health insurance plan. He's also contending for higher tariffs under his protectionist policies.

Finally, he would increase corporate taxes by 25%, though American businesses already face the second-highest marginal tax rates in the industrialized world, thus directly harming manufacturing and job creation while weakening demand for the dollar.

Obama argues disingenuously that his tax increases would only affect higher-income workers and "corporate fat cats." But it is precisely these top marginal tax rates that control incentives for savings, investment, entrepreneurship, business expansion, jobs and economic growth. While he wants to tax the rich, the burden will fall on the poor and the middle class.

In their new book, "The End of Prosperity," Art Laffer, Steve Moore and Peter Tanous argue that the threat of this tax tsunami is already destabilizing our financial markets and causing capital flight from America.

They write, "Hot capital is escaping over the borders out of the United States and flowing into China, India, Europe, and even Japan. . . Starting in late 2007, foreigners started pulling their money out of the United States, and Americans started investing more abroad. Global investors are losing confidence in the U.S."

The American economy was in shambles when Reagan entered office in 1981. Inflation had soared by 25% over the prior two years, unemployment was heading toward 10%, the prime interest rate hit 21%, poverty was on a 33% upswing and real family income had decreased by almost 10% due to the stagflation of the late 1970s.

Reagan cut the top income-tax rate from 70% to 50%, adopted an additional 25% across-the-board rate cut and sliced capital gains taxes in half. The 1986 tax reform left us with just two tax rates of 15% and 28%. Reagan slashed spending growth, lowered tariffs, reduced regulatory burdens and promoted anti-inflation monetary policies.

The result, the authors explain, was actually a 25-year, noninflationary economic boom, with only two brief, mild recessions in 1990 and 2001. "We call this period, 1982-2007, the 25-year boom �?? the greatest period of wealth creation in the history of the planet," they write. "Adjusting for inflation, more wealth was created in America in the 25-year boom than in the previous 200 years."

By 1989, the economy had grown by almost one-third, the equivalent of adding the entire economy of West Germany to our U.S. economy. In 1984 alone, real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created in the 1980s, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

Spectacularly, inflation was slashed to 3.2% by 1983. The prime rate fell to 6.25% by 1992, even though opponents had argued that Reagan's tax cuts would increase interest rates. Family income reversed its decline, poverty reversed its rise and tax revenues actually doubled.

This is the "Change We Need" today.


#2

Another important thing to consider is the fact that we keep importing non-taxpayers through our borders, thus shrinking the taxpayer:non-taxpayer ratio. Further, the citizen children of these immigrants never make it into the income brackets that actually pay taxes, they're just added to the heap of non-taxpaying lower-class earners.

The "bottom 40%" will soon be the "bottom 60%", and so on, leaving fewer people to pay for GWB and Obama's minority money giveaway schemes. They can pay for it by adding to the deficit, but I don't see the rest of the world funding that too much longer.


#3

Yea, you're right about that. Which is why I've always advocated strong borders. John McCain said in one of the debates that "we need to be a nation of high fences and wide gates"; a statement that I wholeheartedly agree with.

But damn, once you come out as someone who believes that illegal immigrants are criminals, and that we need to have VERY tight borders; you're labeled as xenophobic and racist. Ridiculas.

Strong borders make a strong nation.