Wednesday, October 22, 2008

Obama's Tax "Cuts"

Excerpts from a column in in today's WSJ by Adam Lerrick, Professor of economics at Carnegie Mellon University. Mr Lerrick writes, "Obama is offering voters strong incentives to support higher taxes and bigger government, (both anathema to me) . This could be the magic income-distribution formula Democrats have long sought. He promises gift wrapped packets of money in the form of refundable tax credits. this will shift the tax demographics to the tipping point where half of all voters will receive a cash windfall from D.C. and an overwhelming majority will gain from tax hikes and more government spending.

The latest Census showed 220 million Americans were eligible to vote and 89 million paid no income tax. Reputable studies show this will jump to 49% when Obama's cash credits remove 18 million more taxpayers from the tax rolls. What's more, an additional 24 million taxpayers who will pay a minimal amount of income tax--less than 5% of their income and less than $1000 annually. In all, three out of five will pay little or nothing under Obama plans and gain when taxes rise on the 40% that already pay 95% of income tax revenue.

The plunder that the Democrats plan to extract from the "very rich"- the 5% that earn more than $250,000 and who already pay 60% of the federal income tax bill-will never stretch to cover the trillion dollars to cover Obama's promised expansive spending plans.

What is happening? Voter who push for higher tax rates on higher earners-at least until those who power the economy and create jobs and wealth stop working, stop investing or move out of the country.

This ideology of fairness doesn't work and has been tried by countries such as Great Britain and France (refer WSJ, Review and Outlook - The Decline of France, dated 3/21/06) and leaders in both countries defied there party's dogma and loosened labor's grip and won back power on a platform of restoring flexibility to the economy.

The outcomes of bigger government and higher taxes are eventually forces the economy to loss momentum. Over-regulation, especially in the domestic car manufacturing business,(see my next blog) has already caused the economy to lose momentum. Growth in government spending outstrips revenues. Fiscal and trade deficits soar. Public debt, excessive taxation and unemployment follow. The central bank tries to solve the problem by printing more money, international competitiveness is lost and the currency depreciates. The system stagnates and then a frightened electorate returns the conservatives to power.

The economic tides will not stand still while D.D. experiments with European-type social democracies, even though the dollar's role as the global currency will buy some time. (Anyone following the financial crises can see that time is running out). Our trademark competitive advantage will be lost, and once lost, it will be hard to regain. There are too many emerging economies focused on prosperity and not redistribution of wealth.

Tomorrow's children may come to question why their parents sold their birthright for a mess of "fairness"--whatever that will signify when jobs are scarce and American opportunity is no longer the envy of the world."


Todd Mickey said...

Unfortuantely Merle, what makes sense to the Democratic left has nothing to do with sound econonmic policy. Being fair is more important despite the obvious detrimental economic impact.

Merle Widmer said...

We feel guilty before the envious world. We have to prove we are not the arrogant capitalists as many in the world have seen us painted by the actions of some, the constant hammering of our own country by our own media and the Democrats, the pacifists and Hollywood, so that Obama and the liberal Democrats try to show the world by "spreading the wealth", we are a very compassionate country.

Let the ship sink along with the captain and officers but save the "pilgrims". Not much leadership need in a socialistic commune where all are equal.

Todd Mickey said...

Well said Merle. We just have to keep fighting and stay true to our beliefs that to sustain freedom we must empower the individual. Time will show conservatism to be the truest form of compassion.