The Obama Tax Plan is Responsible?

So Say two Barack Obama advisors in this editorial. Let's examine their logic.

Even as Barack Obama proposes fiscally responsible tax reform to strengthen our economy and restore the balance that has been lost in recent years, we hear the familiar protests and distortions from the guardians of the broken status quo.

Many of these very same critics made many of these same overheated predictions in previous elections. They said President Clinton's 1993 deficit-reduction plan would wreck the economy. Eight years and 23 million new jobs later, the economy proved them wrong. Now they are making the same claims about Sen. Obama's tax plan, which has even lower taxes than prevailed in the 1990s -- including lower taxes on middle-class families, lower taxes for capital gains, and lower taxes for dividends.

Right away, in my opinion, they make a fallacious comparison. Comparing the situation when Bill Clinton came into office to the current situation is not a proper comparison. Clinton came into office after an extremely mild recession and once he got into office the economy was already at the beginning of its recovery. Tax policy is entirely dependent on the time and the place. Herbert Hoover foolishly raised taxes at the beginning of what was then a recession and we wound up in a depression. Ronald Reagan cut taxes in 1982 and we came out of a recession. To make a straight comparison between tax policy without setting context of time and place is fallacious if not flat out misleading.

Furthermore, Democrats are fond of pointing to Clinton's tax increases as proof that "responsible tax increases" stimulate the economy. What they never say is that Clinton came into office with less than ten percent of the population having a cell phone and internet access. At the end of his term, it was near 100 percent. Now, no Democrat has ever pointed out how his tax increases lead to this dynamic and that's because the two are mutually exclusive and in fact, his tax increases tried their damndest to slow it down.

Furthermore, Clinton mostly presided over the speculative internet bubble and that drove much of the economic gain throughout his Presidency. In much the same way, Bush presided over the speculative real estate bubble but Democrats condemn Bush's economic policies while they laud Clinton's, even though their market dynamics were largely the same.

The two continue...

Overall, Sen. Obama's middle-class tax cuts are larger than his partial rollbacks for families earning over $250,000, making the proposal as a whole a net tax cut and reducing revenues to less than 18.2% of GDP -- the level of taxes that prevailed under President Reagan.

Both candidates for president have proposed tax plans. But they are starkly different in their approaches and their economic impact. Sen. Obama is focused on cutting taxes for middle-class families and small businesses, and investing in key areas like
health, innovation and education. He would do this while cutting unnecessary spending, paying for his proposals and bringing down the budget deficit.

In contrast, John McCain offers what would essentially be a third Bush term, with his economic speeches outlining $3.4 trillion of tax cuts over 10 years beyond what President Bush has already proposed and geared even more to high-income earners. The McCain plan would lead to deficits the likes of which we have never seen in this country. It would take money from the middle class and from future generations so that the wealthy can live better today.

Sen. Obama believes a focus on the middle class is appropriate in the wake of the first economic expansion on record where the typical family's income fell by almost $1,000. The Obama plan would cut taxes for 95% of workers and their families with a tax cut of $500 for workers or $1,000 for working couples. In addition, Sen. Obama is proposing tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.

Now, much like Obama himself, his advisors believe that economic policy is primarily supposed to promote fairness. They continue to promote cheap class warfare. Their tax policy will put more money in the pockets of the little guy while the other side favors the rich. The problem is that economic policy doesn't work like that. While they painstakingly talk about all the tax savings that for the middle class, they say nothing about what the effect will be of capital gains tax increases, corporate tax increases, pay roll tax increases, as well as tax increases on the wealthiest.

This policy maybe more fair but it will fairly put everyone into a depression. Good economic policy doesn't focus on fairness, that's something Marx would promote. Good economic policy sizes up the nature of the economy and provides the proper stimulus. Our economy is weakening and Obama wants to raise taxes on each and every driving mechanism within it. No amount of nice talk will change that.

Then, they say this.

Sen. Obama believes that responsible candidates must put forward specific ideas of how they would pay for their proposals. That is why he would repeal a portion of the tax cuts passed in the last eight years for families making over $250,000. But to be clear: He would leave their tax rates at or below where they were in the 1990s.

Of course, it is totally fallacious to say that a tax increase would pay for extra spending. That is code for boiler plate tax and spend policies. No one can predict just how much the government will take in tax receipts. Just because you raise taxes doesn't mean that you will raise tax revenue. Those same tax increases could slow the economy down so much that tax revenues will go down. In fact, most tax increases cause the government to bring in less revenues. It isn't responsible to say that each spending increase will be off set by a tax increase, that's just a nice way of masking tax and spend policies.

The bottom line is that everything from jobs to health care, to infrastructure Barack Obama proposes spending increases Barack Obama wants to spend more money. He wants to pay for all of these spending increases with tax increases. That's tax and spend policy and it has failed for generations.

The top two income-tax brackets would return to their 1990s levels of 36% and 39.6% (including the exemption and deduction phase-outs). All other brackets would remain as they are today.

- The top capital-gains rate for families making more than $250,000 would return to 20% -- the lowest rate that existed in the 1990s and the rate President Bush proposed in his 2001 tax cut. A 20% rate is almost a third lower than the rate President Reagan set in 1986.

- The tax rate on dividends would also be 20% for families making more than $250,000, rather than returning to the ordinary income rate. This rate would be 39% lower than the rate President Bush proposed in his 2001 tax cut and would be lower than all but five of the last 92 years we have been taxing dividends.

- The estate tax would be effectively repealed for 99.7% of estates, and retained at a 45% rate for estates valued at over $7 million per couple. This would cut the number of estates covered by the tax by 84% relative to 2000.

Now, what Obama is proposing is a lot of tax increases: raising the top two tax brackets, the capital gains tax, and the reinstituting the inheritence tax (not to mention the corporate tax which they conveniently forget to mention). That's a lot of taxes to raise. It's masked by making allusions to years and generations past. That is irrelevant. Generations past had different income and different market dynamics. It really matters not what the capital gains tax was in 1992.

That said, what the two never explain is how all of these tax increases will affect a weakening economy. It is as though that is unimportant and irrelevant. It isn't. The economy is weakening and tax increases add fuel to the proverbial fire. If a tax plan takes no consideration to the current economic situation that is a recipe for disaster.