Thursday, September 11, 2008

Obama's Economic Plan: Tax Cut or Income Redistribution?

After listening to speeches from both presidential candidates about their economic policies, one has to wonder what are the main differences between them. This is the first of many posts I will be doing differentiating the economic positions of these two candidates. In this post, I am going to break down one part of Senator Obama's Ecomonic Plan.

Obama has given many speeches recently focusing on the economy. In these speeches, he said that he will give a tax cut to 95% of American families. In fact, there is a partisan website dedicated to this tax cut that supposedly calculates how much you will get back. Of course, they don't tell you how they do the calculating, just that the data comes from the Tax Policy Center. Ironically, the Tax Policy Center states

"TPC estimates the Obama plan would cut taxes by $2.9 trillion from 2009-2018. McCain would reduce taxes by nearly $4.2 trillion."

I'm sure many of you saw the recent Bill O'Reilly interview with Senator Obama where he again states this as part of his economic policy. Bill O'Reilly, however, calls out the Senator on this issue and calls it what it really is. O'Reilly states

"'re taking the wealthy in America and the big earners, OK, you're taking money away from them and you're giving it to people who don't [have money]. That's called income redistribution. It's a socialist tenant."

The two key phrases in the quote are income redistribution and socialist tenant. Obama wants to take money from the top 5%, who already carry the majority of the tax burden and give it to the bottom 95% regardless of if they pay taxes or not. That means someone who pays absolutely nothing in taxes, under Obama's plan, would get a check from the government. I don't know about you but that sounds like income redistribution and socialism to me.

While income redistribution and socialism are misguided ideals to me, it is the way he promotes them that's the most troubling. He is using class warfare to get across this message to the American people. Look at this Obama quote taken from an Investor's Business Daily article

"The rich in America have little to complain about. The distribution of wealth is skewed, and levels of inequality are now higher than at any time since the Gilded Age."

The article goes on to state that the division between the classes is always in flux. While right now you might be in the middle class, there's a good chance you will move up either through some personal effort or by riding an expanding economy. I have attached a chart1 from this article that shows how economic growth can propel you from one income quintile to another. This begs the question: is there really any difference between the classes since they're always in flux?

What about people like you and me? People who work hard everyday and pay their taxes accordingly. We're going to get a tax cut right? Well, not exactly. What Obama proposes is less of a tax cut and more of a tax credit. Listen to what Charles Krauthammer said on Special Report with Brit Hume

"Now, if you aren't paying taxes because your bracket is low, you are getting a check. If you are, the check is in the form of a credit, and it reduces your income tax. Normally if you say "I'm cutting taxes," it is a cut in rates. This is not a cut in rates. This is a check. In other words, it is what we called earlier in the year a "stimulus package," and that is spending. It is not a tax cut. It's a clever way for a Democrat to increase spending that is essentially a handout and call it a tax cut."

One word in this quote leaps off the page and that's "handout". Basically, Obama wants to give all the people who don't pay taxes a handout while calling it a tax cut. This just goes to illustrate that you must always read the fine print when it comes to any candidate's economic policies. Just because something sounds good in a sound bite doesn't mean it's good for the country.

1. Obamanomics Flunks The Test. Investors Business Daily. August 1, 2008.

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