Tuesday, October 21, 2008

Obama's Tax Plan: Say Hello to Socialism!

By Peter Ferrara
Barack Obama says he plans to cut taxes for 95 percent of American workers. That sounds terrific, but there are three problems. One, it is meant to draw attention from the real core of the Obama tax plan: proposed increases in every major federal tax. Two, the structure of the cuts will create perverse incentives. And three, many of the people receiving “tax cuts” don’t pay taxes to begin with, meaning they’ll be in effect getting welfare.

The first point requires but a simple list. Obama proposes to raise the top two individual income tax rates by 25 percent or more, through both explicit rate increases and the phaseout of personal exemptions and all itemized deductions for upper-income earners. He’ll increase the capital-gains tax rate by 33 percent, the tax rate on dividends by 33 percent, and the top payroll-tax rate by 16 to 32 percent. He’ll create a new payroll tax for national health insurance, estimated at 7 percent. He’ll reinstate the death/inheritance tax, which is being phased out under current law, with a new top marginal rate of 45 percent. He’ll increase the corporate tax burden by 25 percent “by closing corporate loopholes and tax havens.” He’ll even increase tariffs through his protectionist trade policies.

Obama argues that only higher-income workers and rich corporations will suffer these tax increases, and they can afford it. But tax and economic policy is not about who “can afford it.” Increasing these marginal tax rates greatly harms the economy — when more of the money earned goes to the government, there’s less incentive for “the rich” to work, save, invest, and create and expand businesses. This affects people trying to start businesses with investment money from wealthy folks. Not to mention people looking for jobs, which usually come from businesspeople with money. This isn’t just a theory. Ireland adopted a 12.5 percent corporate tax rate 20 years ago, when it suffered the second-lowest per capita GDP in the European Union (EU). Its economy boomed as a result, and today Ireland enjoys the second highest per-capita GDP in the EU. Ireland, with its 12.5-percent rate, raises 50 percent more corporate-tax revenue as a percent of GDP than the U.S. does with its 35 percent rate. Yet Barack Obama laughs at McCain’s proposal to reduce that corporate rate to 25 percent, the minimum needed to restore international competitiveness for U.S. companies and employers, mocking it as still more tax cuts for rich corporate fat cats.

Obama’s tax plan is exactly the opposite of the supply-side economics that Reagan adopted, which produced the astounding boom of the 1980s. That boom, in fact, lasted 25 years, from 1982 to 2007, as Art Laffer and Steve Moore discuss in their new book, The End of Prosperity. Laffer and Moore explain that more wealth was produced during those 25 years than in the previous 200 years of American history.

Read it all here.

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