Taxes: the real Presidential candidate issue
With all the attention being place on oil and energy in the past few days I thought I’d take another look at taxes. One of the least popular issues that every Presidential race focuses on. And consistently the public has the same request, lower taxes.
For 2008, the ‘election of change’ [a dumb concept considering that is a fact], we have 2 very explicit views. I say explicit, but if you don’t listen carefully or check any other details you may be distracted of confused by the polispeak that each candidate employs. So I want to take a moment, before the rhetoric switches back after the energy issue stops catching headlines, to look at their stances clearly (as found at The Tax Foundation).
Deferring to experience I will start with Senator McCain.
Originally opposed to the President Bush tax cuts, Senator McCain now is in support of this tax plan. He also favors cutting corporate taxes by 10%. For those that suffer from estate taxes he plans to implement a move to only 15% tax on estates over $10 million. He wants to remove the alternative minimum tax, which affects many middle-class families which it was not intended to tax, and he is strongly against any increase in taxes related to Social Security.
Now for Senator Obama.
While he has already voted to increase taxes for anyone making $31,850 he has publicly stated that he will only repeal the Bush tax cuts for the top 1% of the nation. How such a law could be enacted is unknown, and considering that proposals and campaign promises of a similar nature have never occurred his repeals may include more people. He has also promised to eliminate taxes for all seniors that make less than $50,000. When it comes to corporations Senator Obama has stated he will “close loopholes”, which means whatever you wish it to. He has no expressed plan for estate taxes or the Minimum Alternative Tax, presumably leaving them both in place. But he does have a defined plan for the Social Security tax, which he plans to increase – directly coming from wages. There may be an exemption for those above $102,000 but it isn’t clear.
Senator Obama also has several other plans related to taxes that Senator McCain has no comparable for. Senator Obama will create several ‘credits’ for various Americans. One credit will apply to those that work and make over $8,100 – the credit will be for $500 or $1,000 for families. He would also create a 10% credit for all homeowners with a mortgage. This mortgage owner credit would amount to about $500. There would also be an earned income credit for those making minimum wage and working full-time for $555, if children are being supported “responsibly” [how and who determines that?] then another $1,110 is available. For those in college up to $4,000 can be forgiven. Lastly Senator Obama wants the IRS to issue tax forms that are partially pre-filled to reduce the time in filling out the forms.
Now I’m sure both plans have their appeal points, and many with children like the comments by Senator Obama. But let’s look at this in total.
Senator Obama has already voted to increase taxes of most Americans 3%, which he publicly stated he would not do. Because of that I feel every other statement about taxes he has made is in question. In addition every attempt to isolate any singular group of Americans to pay higher taxes has failed. Inevitably Americans not expected to be paying higher taxes do so.
I agree with the concept of excluding taxes for senior citizens that are making enough money to survive on their own. I do not agree on the fixed price or the cap. While $50,000 may sound comfortable today, not long ago $30,000 sounded the same. Any provision that does not take into account the increase of cost of living, nor the cost of medications (which older Americans have higher budgets on disproportionately) fails those it is meant to help.
While spouting polispeak about corporations and their earnings is a winning strategy with unions and newspaper headlines, it is not an effective tax plan. There are some loopholes in the corporate tax code that should be removed, but the real boost to the economy is decreasing tax rates. This allows businesses to increase the number of people employed, or raise their pay, or fund research, or expand to increase scales of economy. Whichever is done the economy for the nation receives more revenues in multiple areas that were stagnant prior. Raising corporate taxes has the opposite effect.
Estate taxes are a special situation that most Americans don’t fall under. Even so, for those that do have to deal with these taxes, they are huge. While most like to point out the multi-million dollar estates, those with far less pay the same tax now. Again this limits gaining revenues on these funds from other sources that could stimulate the economy. But I don’t have a strong opinion on this point.
Social Security is commonly called the “third rail of politics” and it is aptly named. Older voters are sensitive to anything that might affect their money. Considering that most voters are older, and this number is about to swell as baby-boomers age, this is an issue that none want to be on the wrong side of. Then again, younger voters have little interest in funding a program that they in all likelihood will never receive a dime from. SSI is a flawed program that has never worked exactly as planned. Increasing money by raising taxes on those that can’t afford it does little to help anyone beyond actually pushing its problems onto either another administration or generation. Senator Obama’s plan sounds exactly like that.
Senator Obama’s plan for college students sounds eerily like the short-lived plan proposed from then-potential candidate Senator Hillary Clinton. This plan forgives money instead of providing it though. A major question is this though, who will pay the $28.8 billion that this plan would absolve each year. [That assumes that only 7.2 million Americans go to college - and would this include those who take college courses online?] The money from this would have to come from somewhere, which means higher taxes.
I like a 10% credit for mortgages, as I will soon own a home. But in reality I don’t need it. My home purchase is based on the fact that I can well afford the mortgage, and that it is a fixed rate. Those that prepare properly for a home purchase have no need of a credit. Those that do not will not be saved by what would amount to maybe 2 months payment on their obligation. If this plan were less polispeak, it would be designed to help stimulate the economy – especially since 96% of all mortgage holders are paying on-time.
I can’t think of anything more to ask about a credit for those that have children [specifically it seems targeted to fathers paying child support] than who and what criteria equate to responsible. How would this be enforced. Under it’s current wording this implies that the Government would be involved actively in raising every child in America, under arbitrary and politically motivated rules. And what happens if the Government claims you are not being responsible? Do they take the children from the parents, or incarcerate them, publicly ostracize them or penalize them in some other way? Considering that the Government can’t balance a checkbook or check out foods for potentially deadly diseases I don’t trust their opinion on what is “responsible” in child rearing.
And lastly the IRS tax forms. It’s a nice polispeak rabble rouser. It gets headlines. It sounds great, until you think about it. How long do you think it will take to mail out tens of millions of printed tax forms? How will those who have never filed a tax form prior file? How much will this cost to be made? Especially since each and every form will be individual so scale of economies will never take place (never mind the fact that it would likely cost more each and every year – like stamps).
And perhaps most importantly, how will the Government ensure that every document is sent out to the proper person. Because if even one were to be mishandled, or one employee were paid off, identity theft would be rampant. Some would counter that the government send out documents now though no numbers exist on how many are improperly delivered. But the counter would accurately be that the Government is inefficient in every department, what would cause the IRS to suddenly become so?
So in honestly reviewing the tax positions of Senator Obama and Senator McCain, on balance I see McCain with better plans and more effective for the nation. You may not agree, and if so I’d love to hear where I got it wrong. And if I got it right let me know. [please remember I’m not an economist so don’t get too technical on me.]
Labels: college tuition, IRS, mortgage loans, Polispeak, Presidential election race 2008, Senator Barack Obama, Senator John McCain, Social Security, tax policy, tax rates
posted by M. Vass @ Thursday, June 19, 2008
3 Comments
3 Comments:
alas, you've got it wrong. the vast income gap between the richest and poorest americans is almost directly the result of reagan's aptly named "voodoo economics," a theory that suggested giving the rich more money would ultimately "trickle down" and benefit the poor.
the theory was this: the rich, having more money, would invest in business, thus providing jobs, thus providing income to the working folks, thus stimulating the economy.
even if it had worked, it is a ridiculously roundabout way of stimulating the economy by putting $$ in the pockets of working people.
it did not work. wages have been virtually flat since reagan's days. a little jump under clinton, not much.
the rich, however, have benefited . . . richly. my goodness, how their bank accounts have grown. it's just luscious being rich these days in right wing america. everything is designed to ensure that you hang on to what you have and get more and more and more.
at the expense of the rest of us. when reagan drastically cut taxes on the rich ~ from a top rate of 70% to a top rate of 35% in less than eight years ~ the money had to come from somewhere.
the theory, again, was that these tax cuts would have a vast stimulative effect on the economy. they did not. neither did george bush doing the same thing, but i'm getting ahead of myself.
what happened was that the federal budget was squeezed to the point that it needed $$ . . . in order to fund government, reagan raided the social security trust fund. he put the next generations into hock. and the travesty continued through bush I and now, again, with bush II.
this economic theory was almost a joke in economic circles. it had never been tested for the obvious reasons that learned and educated economists knew that it would not work.
it has not work. reagan launched us into a second gilded age. my grandchildren's grandchildren will be paying off this debt. on top of that he deregulated industry after industry and ceased attending to trust busting and overseeing monopolies. the result has been, of course, rampant fraud and cronyism and bullying of government by megacorporations. the home mortgage debacle is only the latest incarnation of the kind of deregulation that republicans insist is necessary for business.
post-Depression, roosevelt instituted the New Deal in a very short period of time. it was an economic program which had the federal government operating for the benefit of the people. the result was a stabilizing of the economy and many positive changes (for working americans) that resulted in the longest extended period of economic growth and prosperity this country has ever seen.
the vast middle class that developed out of the new deal was good for democracy as a whole, and it was good for the american economy. that was the period of time in which we were convinced that we were invincible, unstoppable. we were the greatest, strongest, richest nation on earth. we were.
and then came martin luther king and the issues of race in the '60s. throughout the '60s we were still on the route of prosperity, it lasted right up until the late '70s and then it came to a screeching halt with reagan, who used the racial angst of the '60s to send out those racist dogwhistles to southern whites and turn an entire region republican, thus ensuring that the new deal was at an end.
union busting, tax cuts for the rich, deregulation of critical industries, elimination of the fairness doctrine . . . all reagan's doing and just the start of what would ultimately become the virtually unstoppable right wing as we know it today.
under roosevelt, with the new deal, tax rates for the rich ran as high as 90%. the disparity between rich and poor was not nearly so vast. the vast majority of people were living wonderfully prosperous lives of having enough, no financial worries, life was good and safe and stable (for most and sadly, of course, not for african americans or native americans or other minority groups).
can you think of any reason at all that a hedge fund manager who makes $3.5 billion a year should pay a 15% tax rate?
as a small business owner, i pay far more than that and make nowhere near that kind of money.
warren buffet, one of the top two richest men in the world, says that our tax policies are ridiculous, he supports obama, and he says that people like him need to pay much, much more in taxes. his effective tax rate, he says, is less than what his secretary pays.
the sam walton family ~ the wal-mart people ~ are the driving force behind eliminating the estate tax. that shouldn't seem so bad, should it? until you take a look at how hideously destructive wal-mart has been in this nation, how many working families have been put out of business by them, how many sweat shop workers have suffered for pennies to produce wal-mart goods, how they have artificially held down wages, denied benefits, have fought unions at every turn.
they do nothing to help america. why should america give them more than they've already got? they're ridiculously rich already. when is enough ever enough?
we have the lowest corporate tax rate of any developed country on earth. our personal tax rate is lower than most developed countries.
yet among all of the developed nations, we alone have no public health plan. we alone have decimated unions. we alone have simply handed off, with no complaint, millions of jobs to multinational corporations who care nothing for the people of this nation and whose obligation is only to their bottom line.
i am waiting for the presidential candidate who says "we are trillions of dollars in debt and your great, great, great grandchildren are going to be paying this off. we have borrowed so much money that we are owned by china. as a result, we have to raise taxes on everyone."
that's the truth, the tragic truth, and another thing about the new deal era, people never complained about the taxes they paid or the increases in the taxes they paid. they were paying for a great nation to maintain infrastructure, to educate children, to provide for the elderly and disabled. there was a community spirit that is tragically lost in this time.
so ultimately, the point of all of this, is that obama, in being willing to talk about, at minimum, an increase in social security taxes, has it right. john mccain, with his absurd and ridiculous statements about cutting taxes even further should be considered a traitor to this nation.
all of that and i never said what i really wanted to say:
much research has proven that money provided to the lowest income people actually does stimulate the economy.
when the minimum wage was raised in the state of NY, for example, the economic boost was unexpected and welcomed. what happened was that poor folks, by virtue of not having much, spent every new penny they had.
rich folks, when they've got a lot, don't even really notice when they get a little more. they certainly don't rush out to buy school clothes or take a little vacation or reward themselves by going out to eat.
extra money in the pockets of poor, working class, middle class folks stimulates the economy. extra money in the pockets of the rich, if it comes from tax cuts, has a net neutral effect on the economy.
Belle,
Well that is quite a commentary. And I thank you for it. Obviously I disagree with your points, and I will point out why.
President Regan’s economic policy was called the Trickle Down. ‘Voodoo Economics’ is the term liberals and Democrats used to describe it because they were displeased. And it in fact did work, though it was not an immediate affect which may be why those who were against the policy presumed it would be.
In fact the economic prosperity of the nation since 1980 can be directly connected to economic plans of Republican Administrations and the downturns can virtually be connected to Democratic Administrations.
But more important than just having me say thing, let me give you some numbers.
President Carter was in office from 1977 to 1981. In 1980 inflation was at 13.5%. Unemployment was equally at double digit levels. The Average American income was $17,700 (as opposed to $8,730 in 1970) provided for by a single income. A new house cost $76,000 (which is up from $26,500 in 1970 and $16,500 in 1960). That was the environment that President Regan took over in.
This says nothing of the Cold War, Iran taking an American Embassy hostage, 2 prior oil crisisies, and several wars for Israel. That was the world then.
From 1980 until today there have been multiple improvements in personal income. The average median income today is $48,000 or for those older than 25 years between $32,000 - $39,000 on average. The disposable income has increased from $4,129 in 1972 to $27,640 in 2005. Unemployment is at 4.5%. The average home making over $60,000 has 2 incomes while a single income family makes between $22,000 to $57,000.
19% of Americans make over $100,000 and 20% make $20,000 or less (which is a solid bell curve proportion). The higher the education of an American the higher average pay they receive.
To put it in perspective, the average income in the US exceeds Canada ($44,000 in 2005), United Kingdom ($39,000 in 2004), Australia ($38,000 in 2006), and Hong Kong ($31,000 in 2005). In fact looking at the average income of the best (NJ at $66,000) average (NY at $48,000) and worst (MS at $34,000) states we exceed most nations in comparison.
So in fact the average American is better off than perhaps ever before. The differences are that things cost more these days, particularly the discretionary items we buy. There were no iPods in the 70’s, no DVD’s in the 80’s. Personal computers were horribly expensive in the 80’s and 90’s compared to today (to say noting of the far inferior capacity and computing power). A 13” color tube TV in the late 70’s was ~$400, and a 19” HD LCD flat screen today costs the same (and more people own 2-3 TV’s than ever before).
Yes housing is a problem. Bad lenders and bad practices have burst a bubble that has been going since 2000 if not 1990 (a new house cost $149,000 in ’90 and $207,000 in 2000). Such is the nature of bursting bubbles. Of course if you are selling a home you purchased back in 1980 (less than the 30 year mortgage) you are walking away with a profit regardless.
So the facts are that since the start of Reganomics America has had 4 Republican Presidents with conservative economic policies (some more effective than others given), and one Democrat that did nothing and thus neither improved or lessened the impact to the economy (the stock market bubble was a Clinton Administration problem that ended during the early portion of President Bush’s 1st term). There are more Americans (now over 300 million) with more money and more jobs now than ever before.
As to Social Security, the Government was taking money from that long before Regan. And the Government was in debt long before him as well. Both of those are problems of Administrations and politicians before the 80’s, and the public is to blame because we allowed them to make those choices and re-elected the officials that made them.
As for the joke, as I recall it was the windfall taxes plan of President Carter that was viewed as a joke and failure before, during and after execution. Windfall taxes have never worked and have never been viewed as a positive plan by serious economists.
As for busting monopolies let’s look at the old Ma Bell. I’m old enough to know that there used to be 1 telephone company. But Democrats found that to be a problem. So it was broken up. Now there are multiple phone companies, higher prices for local and long-distance calls. That plan went well.
And Post-Depression America was not quite comparable to today either.
Many of President Roosevelt’s New Deal programs were not made just for the benefit of average Joe but the nation’s economy as a whole. Many of his reforms were thrown out as unconstitutional. Reforms to banking and the creation of the SEC did not affect the overwhelming majority of the population then. WWII had a massive positive impact on manufacturing and the economy.
When America had just exited WWII, the Cold War was in its early stages. Incomes were increasing as men returned home (they replaced the women that had worked in their place for less pay). Technology improvements made during the war were implemented improving scale of economies. There were less men than before the war cutting unemployment numbers. But you are correct that it was a prosperous time for White male Americans. For everyone else it was somewhat better but still very difficult.
What halted that highly prosperous time was oil and bad management. OPEC hit America hard. The youth of today don’t recall the lines for gasoline, but I do. And as mentioned above that was prior to President Regan by years. So comparing 1950’s America with 2008 is not really valid.
“can you think of any reason at all that a hedge fund manager who makes $3.5 billion a year should pay a 15% tax rate?”
Yes in fact I can. Actually the correct way this argument is made is how can someone who owns a mutual fund in the billions pay less than his secretary. That is the statement made by Warren Buffett in essence. It’s because Mr. Buffett receives a bulk of money from his investments. His secretary does not, nor does any employee. If Mr. Buffett did receive the bulk of his income from pay then he would be taxed more.
Of course the pay for the employee is not dependant on profits or earnings performance of a company. Thus Mr. Buffett is taking a risk that the employee does not. He also grew that wealth over some 40 years, benefiting from interest and timely decisions, which an employee cannot.
But all that money invested helped companies grow and improve. In fact that’s why stocks were created. As an alternative to cash to help corporations grow and benefit investors. So in making his investments he helped the economy.
And still no one has explained to me why Mr. Buffett has not seen fit to gift any of his money to the Government. If he thinks he pays to little in taxes he can always pay more, but he doesn’t. If he thought the Government was deserving he wouldn’t give his money to a foundation instead now would he?
You say Sam Walton’s family has too much money. What is just right? Who gets to decide? Does that mean you make just enough? Or what if you are making too much, should you give up an extra, say 15%, because someone says so and you never get to make more? Does that sound like America or communist Russia to you?
And while we have no Government run socialized healthcare, we have the best healthcare in the world. Thousands travel to this nation instead of their own for care. I wonder why? Besides my point that there is not one government agency that works at budget efficiently. When VA care improves (without a budget increase) and the Post Office makes cheaper stamps (while having better service) I might consider it.
And again, sorry to burst the bubble but people have always complained about taxes. They’ve argued that they are illegal and too high since the day they were made. There may be more complaining as the years pass, but there has always been complaints at all income levels.
Again I stated that part of the Obama plan sounds interesting, if infeasible in the real world, but the McCain plans help the nation and that is what a President needs to do. While you and others may not feel better, the nation economically will be better.
You have not disproved my points, though your arguments are passionate and I respect that. But passion waxes and wanes with time. Making plans for a sound future must entail realistic facts and executable ideas. Even if you feel bad in the present.
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