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Obama’s tax plan: what could be clearer?
August 15, 2008
I am not devoting myself full-time to following the iterations of the candidates’ tax plans–as you will soon see, that way lies insanity–but I was interested to see the article by Jason Furman and Austan Goolsbee, Obama’s top economists, in today’s WSJ. It says, among other things, that “the top capital-gains rate for families making more than $250,000 would return to 20%” and that “the tax rate on dividends would also be 20% for families making more than $250,000.” (Both rates are currently 15%.)
Good to have that confirmed. Three weeks ago, the nonpartisan Tax Policy Center (which produces the most authoritative independent appraisals of the campaigns’ fiscal proposals) used new rates of 25%, not 20%, to calculate the numbers most of us have been using lately. It had inferred those tax rates from the Obama campaign’s statements and revenue projections.
The thrust of the Furman/Goolsbee article is that Obama would cut taxes overall relative to current policy, while shifting the burden from people on middle and lower incomes to the rich. Cling to that: it might be true. Unfortunately, although the piece is full of numbers, I don’t see an estimate of that net tax change, a figure of some interest. And the campaign still isn’t saying how much, or even whether, the payroll tax for families on more than $250,000 a year will rise. The campaign says it is considering options in the 2-4% range, worker and employer combined. I don’t know if the effects of that change should be included in the estimate they forget to give of the net tax change. Presumably not, because the article says this bold effort to shore up Social Security would not be activated for a decade or more. That makes two interesting announcements. (Does it also imply a third term for President Obama?)
The article doesn’t say much about spending–except to promise that Obama would cut it, to pay for his net tax cut. Do Democrats realize that Obama is promising to cut public spending overall? This was news to me. The big-ticket item on the spending side, of course, is health care. Obama’s website explains how the costs of his health reform, estimated at a surprisingly modest $50 billion-65 billion a year, will be met: “The Obama plan will realize tremendous savings within the health care system to help finance the plan. The additional revenue needed to fund the up-front investments in technology and to help people who cannot afford health insurance is more than covered by allowing the Bush tax cuts to expire for people making more than $250,000 per year, as they are scheduled to do.” Ah, there you’ve lost me. The tax plan promises a net tax cut. The revenues from taxing the rich more heavily will be more than spent on cutting everybody else’s taxes. There’s no surplus left over to set against the cost of health care reform. There’s a shortfall.
The article also says: “Overall, in an Obama administration, the top 1% of households — people with an average income of $1.6 million per year — would see their average federal income and payroll tax rate increase from 21% today to 24%, less than the 25% these households would have paid under the tax laws of the late 1990s.” I need to find the footnotes for that one. The Tax Policy Center, in tables refreshed today, says that the average federal tax rate on the top 1% of tax units (including business income and the estate tax) would rise by 7.2 percentage points to 35.6% by 2012, fully phased in. That is a hefty rise.
The TPC’s July 23rd document described Obama’s then-proposed tax increases on upper-income earners as “enormous”. But obviously that assessment will need to be updated.
“… what could be clearer?” , ” a hefty rise.”
A call for the subjunctive mood …
While the discussed ‘fully phased in’ tax rise may seem clear, the actual situation situation is far from clear.
To begin with, Obama is nowhere hear the office of president.
Second, congress, not the president, sets tax rates. The president may only make recommendations. Unless the next election gives Democrats a filibuster proof majority who agree with a Democratic president, a major tax rise may just be a pipe dream.
Third, people in the top 1% of households are legally entitled to, are able to afford, and, in fact do, hire the very best tax lawyers and accountants to exploit every means of reducing their tax burdens. Thus, the nominal tax rates differ significantly from the actual rate of taxes paid.
Fourth, with economic conditions in their current state, one suspects the population of households in the top 1% may be significantly changed in the next few years. It is possible that market losses will be far more destructive than any but the most confiscatory tax policies would be. James Cayne is a prime example of this.
Fifth, tax rates were much higher during the Clinton administration and the economic health of the nation was far better during that time. Bush inherited, and quickly dissipated, a budget surplus.
So many ifs …
Posted by: J Llewellyn | August 15th, 2008 at 4:22 pm | Report this commentIf Obama weren’t of mixed race, he would have been a Republican.
Posted by: Vinod Joseph | August 17th, 2008 at 6:25 am | Report this commentThe argument that wealthy people can afford to hire lawyers to avoid taxes is heinous. So why not charge all wealthy people with murder, they can afford lawyers to put up a good defense?
When people go about avoiding taxes, they are not spending their time working productively. Business investment suffers, less people are hired, and the overall wealth of the country is diminished.
Bush tax cuts have been near miraculous given the huge spending increases in the last 8 years. The economy is still in tolerable shape because of tax management, and little else.
I welcome any moves away from Sen. Obama’s socialistic campaign of tax confiscation, but I am not real confident in his consistency, given his shaky history.
JBP
Posted by: John Powers | August 18th, 2008 at 2:47 am | Report this commentJBP: “Sen. Obama’s socialistic campaign of tax confiscation”
I hate to tell you that the previous comment by Mr. Joseph is much more accurate than yours: “if Obama weren’t of mixed race, he would have been a [moderate] Republican.”
There is nothing “socialistic” in Senator Obama’s policy positions - all represent traditional, mainstream policies.
We would benefit greatly as a country were Senator Obama elected and some of his policies ultimately socialist - most specifically in regard to medical services financing. The biggest current socialist program the USA now has is the USA military, a program that will inevitably continue as a socialist one, fully socialist I hope rather than half-socialist in the use of public funds to pay mercenaries, but materially curtailed in amount and re-oriented to peace-keeping activities.
The tax cuts proposed by the Bush Administration and ultimately enacted by the right-wing Republican Congress are shameful from a social equity perspective, damaging economically and grossly irresponsible from the perspective of governmental fiscal policy.
Posted by: Wendell Murray | August 18th, 2008 at 5:58 pm | Report this commentWendell,
The most Left voting member of the Senate is in no danger of becoming a moderate Republican, regardless of his race.
Socialism has been around long enough to be “traditional, mainstream” and an unqualified failure. Taking money from one set of voters to give it to another set of voters does not seem like social equity to me, rather vote buying in the Cook County tradition that Sen. Obama built his campaign on. I have yet to hear a sensible argument a flat tax, that actually is equal throughout income brackets.
Nevertheless, I applaud any move by Sen. Obama to lower taxes from the confiscation he proposed during the primary.
JBP
Posted by: John Powers | August 18th, 2008 at 6:23 pm | Report this comment“Taking money from one set of voters to give it to another set of voters does not seem like social equity to me”.
This is the essence of social equity. Progressive taxation is the essence of social equity. Equal taxation of income regardless of source is social equity. The laughable pretense that the rich, who are the primary beneficiaries of capital gains, should have their income from that source taxed at a lower than normal rate, or maximum of 15%, is one of the more shameful misdeeds done by the current Administration and the coincident Congresses. The argument that lower taxation of capital gains somehow encourages economic growth and innovation has no proof in fact. It is a sham argument to enrich the already rich.
Regrettably some Democrats such as Charles Schumer in the Senate, much of whose financial support comes from moneyed interests in NYC, is a protector of those interests as bad as the right-wing Republicans.
The argument you make in that phrase represents the narrowest of possible perspectives on the human condition and is blind to the realities of human behavior.
I will be delighted if Senator Obama wins election and with a solidly Democratic Congress decides to confiscate more of my hard-earned income as taxes along with yours, if that is necessary to fund government operations. There are vast amounts that can be cut from military and healthcare spending, not to mention subsidies to large corporate interests in energy, transportation and agriculture that provide only a benefit to the recipients with no value to the tax-payer. All it takes is some knowledge, commonsense, the courage to tell the truth to the voters and the courage to act responsibly - all characteristics lacking among the members of the current Administration.
Posted by: Wendell Murray | August 19th, 2008 at 2:15 am | Report this commentObama is a tax-and-spend democrat, that’s why his tax policy is clear.
Ekonomix
Posted by: Ekonomix | August 19th, 2008 at 7:41 pm | Report this commenthttp://turkeconomy.blogspot.com/
Wendell,
You are confusing social equity with piracy. The reality of human behavior is that humans do not like to be forced to hand over there money: not to pirates, not to government, nor to any other entity that offers such irresponsible behavior in return for one’s loot.
Your imagining that someone who voted for the Bridge to Nowhere, like Sen. Obama, and has participated in developing some of the most miserable housing projects in Cook County (Obama again) is somehow capable of commonsense spending is absurd.
JBP
Posted by: John Powers | August 20th, 2008 at 1:48 am | Report this commentYes, but I still think that Mayor Daley should declare an independent socialist state of Chicagostan that invites in the Russian military and enriches Russian oligarch-controlled construction companies to turn Midway into a joint Chicago police force/Russian military base. In addition, anti-ballistic missiles tipped with nuclear weapons should be positioned there to prevent attacks on Chicago from potential missile attack from Georgia (both the USA State and the country north of the Black Sea and south of Russian) which oppose the democratically-elected government of Chicago.
Posted by: Wendell Murray | August 29th, 2008 at 11:33 pm | Report this commentObama’s tax plan will destroy the Social Security system.
Obama says his income tax plan will lower taxes for 95% of Americans. There is just one problem with this, 40% of Americans already pay no income tax. Obama’s response to this is that these people pay Social Security tax. Well, that’s not income tax, but a contribution to their retirement plan. So if he wins and implements his tax plan, for the first time in the history of Social Security, 40% of the people who will get retirement benefits will have paid nothing for them. Social Security will then loose all pretext of being a retirement plan, and will become a national welfare program.
This will cause Social Security to lose public support in a massive way. Leave Social Security contributions out of income tax plans. If you take some peoples income taxes to pay others Social Security taxes, Social Security will be destroyed forever.
http://strategicthought-charles77.blogspot.com/2008/10/obamas-tax-plan-will-destroy-social.html
Posted by: charles | October 24th, 2008 at 6:37 pm | Report this comment