Deeper in Debt
" You load 16 tons, and what do you get?
Another day older and deeper in debt."
"16 Tons" by Tennessee Ernie Ford (1955)
Do you earn more than $250,000 per year?
Do you believe that Barack Obama's tax plan will raise your taxes?
If you answered "yes" to both questions, you are right, and you almost certainly will vote for John McCain in November.
But if you answered "No" to the first question and "Yes" to the second, you have been taken in by McCain's misleading TV commercials. Actually, you and most Americans would receive a tax cut under his plan.
McCain's own tax plan really would cut taxes for all taxpayers; he even favors allowing taxpayers to figure their taxes two ways, and pick the cheaper one to use in filing their annual 1040. For those earning the top one percent of American annual income, McCain's tax cut would save about $100,000 per year. For middle-class taxpayers, the saving would be about $600, and for the working poor ( the bottom 20%), the saving would be about $65 per year . (1)
According to the Tax Policy Center, the McCain tax cuts would cost the federal government about $700 billion per year, or about $ 7 trillion over the next decade. The Arizona senator is against "earmarks" (pork-barrel spending "earmarked" by members of Congress for their states or districts) and will veto them; the trouble is that there is nowhere near that much pork in the federal budget!
Just to offset the tax-cuts (not to balance the budget, which is now about $400 billion in the red), McCain would have to cut deeply into major government programs such as Defense, Social Security, Medicare and Medicaid. Moreover, the big mortgage bail-outs now in process to prevent massive foreclosures and failures of Fannie Mae and Freddy Mac (2) will add many billions to federal spending in the next few years, making the proposed tax-cuts even more untenable.
But, wait-----won't tax cuts stimulate economic growth and bring in enough new tax money to pay for themselves? Did this not work in the past? Don't we believe in "supply side economics?
The last fiscal year the US had a budget surplus was FY 2001, when the national debt was about $5.7 trillion (3) and unemployment was just under 5%. Under the leadership of President George W Bush, taxes were slashed in 2001, about 7 years ago. If the "supply side fantasy" were true, the tax cuts would have long since paid for themselves. We would have both a reduced national debt and lower unemployment due to the economic growth stimulated by the tax cuts. The facts: the debt today is $9.6 trillion and unemployment is about 6.1% of the workforce.
What went wrong? No doubt the September 11 attacks hurt the US economically, and the costs of the Afghanistan War and the subsequent Iraq War increased government spending on Defense dramatically. (In the past, we have raised taxes to pay for wars, but not this time.) However, the Bush Administration's Medicare drug-benefit and No Child Left Behind education bill have also added to government spending. Maybe these were good ideas, but there can be no question that they have increased US outlays, and must be paid for by someone someday.
Another problem is that today investment by business does not necessarily increase jobs in the US; instead major manufacturers are building factories in China, Mexico, Vietnam, and other low-wage countries. In this era of a global economy, more money in the hands of business may mean more jobs, but those jobs might well be in Asia or Latin America, rather than here. Government also uses its money to create jobs----but nearly all government jobs are here in the US!(4)
Our federal deficit is funded by selling US treasury bills on the world market, and China is a major buyer. Older readers may recall the fears that China would bomb the US or invade our Asian allies; today China could hurt us even more by refusing to fund our debt! Our huge nuclear arsenal and powerful navy are useless against this threat. The only way we can avoid becoming more dependent upon Chinese and other foreign creditors is to balance our federal budget, and then start paying down our humungous national debt.
I would like to see even one candidate publish his proposed first year budget, broken-down by department and program, and what tax rates would be required to pay for all of it! Why not devote a tiny fraction of the campaign budget to hiring a few accountants to whip this up? Maybe this is the "straight talk" that neither nominee would like to share with the voters!
Although Barack Obama would impose higher taxes on the wealthy (those with incomes over a quarter of million dollars per year), his tax and spending plans would still increase the national debt by about $ 4.25 trillion over the next decade. (1). The problem with the Obama plan is not that he wants to raise taxes on average Americans----actually most people would pay less after a $1,000 per family credit-----but that he has not proposed any tax plan that would pay for his proposed expenditures!
If McCain would just us this truth about Obama's fiscal plans, the effect would be even more devastating than the lie that the Democrartic nominee wants to raise taxes on average earners. But he cannot do that without admitting that his own tax plan would put us even deeper in the debt-hole, and thus even more dependent upon foreign investment in our treasury bills.
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(1) "More Radical Than Bush" by Jonathan Cohn in the New Republic, September 24, 2008, page 23.
(2) FNMA ("Fannie May") stands for Federal National Mortgage Association) and FHLMC ("Freddy Mac") stands for Federal Home Loan Mortgage Corporation.
(3) "Bailout may follow historical precedents" by Tom Raum, Associated Press, Sept. 21, 2008.
(4) The US Government buys some foreign goods, such as Israeli Uzis and Arab oil, which pay for some jobs in foreign countries. This is in addition to foreign military and economic aid, which also creates jobs overseas.
Another day older and deeper in debt."
"16 Tons" by Tennessee Ernie Ford (1955)
Do you earn more than $250,000 per year?
Do you believe that Barack Obama's tax plan will raise your taxes?
If you answered "yes" to both questions, you are right, and you almost certainly will vote for John McCain in November.
But if you answered "No" to the first question and "Yes" to the second, you have been taken in by McCain's misleading TV commercials. Actually, you and most Americans would receive a tax cut under his plan.
McCain's own tax plan really would cut taxes for all taxpayers; he even favors allowing taxpayers to figure their taxes two ways, and pick the cheaper one to use in filing their annual 1040. For those earning the top one percent of American annual income, McCain's tax cut would save about $100,000 per year. For middle-class taxpayers, the saving would be about $600, and for the working poor ( the bottom 20%), the saving would be about $65 per year . (1)
According to the Tax Policy Center, the McCain tax cuts would cost the federal government about $700 billion per year, or about $ 7 trillion over the next decade. The Arizona senator is against "earmarks" (pork-barrel spending "earmarked" by members of Congress for their states or districts) and will veto them; the trouble is that there is nowhere near that much pork in the federal budget!
Just to offset the tax-cuts (not to balance the budget, which is now about $400 billion in the red), McCain would have to cut deeply into major government programs such as Defense, Social Security, Medicare and Medicaid. Moreover, the big mortgage bail-outs now in process to prevent massive foreclosures and failures of Fannie Mae and Freddy Mac (2) will add many billions to federal spending in the next few years, making the proposed tax-cuts even more untenable.
But, wait-----won't tax cuts stimulate economic growth and bring in enough new tax money to pay for themselves? Did this not work in the past? Don't we believe in "supply side economics?
The last fiscal year the US had a budget surplus was FY 2001, when the national debt was about $5.7 trillion (3) and unemployment was just under 5%. Under the leadership of President George W Bush, taxes were slashed in 2001, about 7 years ago. If the "supply side fantasy" were true, the tax cuts would have long since paid for themselves. We would have both a reduced national debt and lower unemployment due to the economic growth stimulated by the tax cuts. The facts: the debt today is $9.6 trillion and unemployment is about 6.1% of the workforce.
What went wrong? No doubt the September 11 attacks hurt the US economically, and the costs of the Afghanistan War and the subsequent Iraq War increased government spending on Defense dramatically. (In the past, we have raised taxes to pay for wars, but not this time.) However, the Bush Administration's Medicare drug-benefit and No Child Left Behind education bill have also added to government spending. Maybe these were good ideas, but there can be no question that they have increased US outlays, and must be paid for by someone someday.
Another problem is that today investment by business does not necessarily increase jobs in the US; instead major manufacturers are building factories in China, Mexico, Vietnam, and other low-wage countries. In this era of a global economy, more money in the hands of business may mean more jobs, but those jobs might well be in Asia or Latin America, rather than here. Government also uses its money to create jobs----but nearly all government jobs are here in the US!(4)
Our federal deficit is funded by selling US treasury bills on the world market, and China is a major buyer. Older readers may recall the fears that China would bomb the US or invade our Asian allies; today China could hurt us even more by refusing to fund our debt! Our huge nuclear arsenal and powerful navy are useless against this threat. The only way we can avoid becoming more dependent upon Chinese and other foreign creditors is to balance our federal budget, and then start paying down our humungous national debt.
I would like to see even one candidate publish his proposed first year budget, broken-down by department and program, and what tax rates would be required to pay for all of it! Why not devote a tiny fraction of the campaign budget to hiring a few accountants to whip this up? Maybe this is the "straight talk" that neither nominee would like to share with the voters!
Although Barack Obama would impose higher taxes on the wealthy (those with incomes over a quarter of million dollars per year), his tax and spending plans would still increase the national debt by about $ 4.25 trillion over the next decade. (1). The problem with the Obama plan is not that he wants to raise taxes on average Americans----actually most people would pay less after a $1,000 per family credit-----but that he has not proposed any tax plan that would pay for his proposed expenditures!
If McCain would just us this truth about Obama's fiscal plans, the effect would be even more devastating than the lie that the Democrartic nominee wants to raise taxes on average earners. But he cannot do that without admitting that his own tax plan would put us even deeper in the debt-hole, and thus even more dependent upon foreign investment in our treasury bills.
--------------------------------------------------------------------------------------
(1) "More Radical Than Bush" by Jonathan Cohn in the New Republic, September 24, 2008, page 23.
(2) FNMA ("Fannie May") stands for Federal National Mortgage Association) and FHLMC ("Freddy Mac") stands for Federal Home Loan Mortgage Corporation.
(3) "Bailout may follow historical precedents" by Tom Raum, Associated Press, Sept. 21, 2008.
(4) The US Government buys some foreign goods, such as Israeli Uzis and Arab oil, which pay for some jobs in foreign countries. This is in addition to foreign military and economic aid, which also creates jobs overseas.
Labels: deficit. debt, McCain, taxes
posted by Gerald S Glazer at 10:31 AM
5 Comments:
This is your whole justification for why McCain must be stopped, as you told me recently? I don't buy it for a second. First, Obama's ads have been far more dishonest than McCain's. The recent Spanish ad linking McCain to Rush Limbaugh was disgraceful and racist. And now he's telling seniors that the "Bush-McCain privatization plan" would "cut Social Security benefits in half." That this crude lie is absurd on its face does not mean that no fearful seniors will fall for it. And how do you defend Obama breaking his campaign finance promise? He ALWAYS does what is politically expedient. He has never taken a courageous position on anything in his whole career. He sat in the pews of that radical church for 20 years because it helped advance his ambitions, then he dumped the church as soon as it became a problem. He's comfortable around the likes of Bill Ayers, and he never denounced Farakkan until he was pressured to do so. You support expanded domestic drilling and so does McCain (and Palin will probably persuade him regarding ANWR), while Obama does not. Is this not a huge economic issue--and an even bigger national security issue? You oppose the President sitting down with the Hitler of Iran without preconditions--but that's Obama's plan. Aren't you even a little concerned about Israel, let alone the US and our allies? You have repeatedly said that experience is very important and that Obama has no experience. You can't possibly expect me to believe that your main reason for switching to Obama is tax plans. Please tell everyone the REAL reason you are now supporting Obama. Is it because those "dangerous" Christian conservatives are excited about Palin? Seriously, what is it? I believe you are putting your credibility in jeopardy. I'm curious to know what Ivan thinks.
Well I see four fallacies here.
1. You have only discussed personal income tax rates and not the entire tax package of each.
2. You have not given credit to McCain for budget cuts and you minimized Obama's promised increased expenditures
3. You have assumed that the rich have unlimited funds and that taxing them will pay for anything we want.
4. You incorrectly analyze the effects fo tax decreases.
1. Your analysis of income tax rates is correct, but you fail to note the following tax decreases as part of McCain's plan
a. doubling of child benefit
b. decrease in corporate rate from 35 to 25%
c. $5000 rebate to be used for health insurance.
In addition the Bush tax cut will expire soon and McCain is for extending this and Obama is for eliminating this. This is a flat rate change that all tax payers get.
Regarding Obama he has promised to increazse the capital gains taxes. At first he said he would double them from 15 to 30% but he has reduced that to 20 or 25%. Anyone who has stocks, bonds, property, business, mutual funds, 401K's, IRA's, or pension palns is affected by capital gains and that means most people of all incomes.
Also Obama voted to increase taxes 92 times and he is a socialist based on his education and votign record. Considering that his tax plan will not cover all the expenses he has proposed he will either have to increase taxes more than he says or reduce his prgrams. He will have no hesitation of increasing taxes even more than he now suggests according to his voting record.
2. The budget has increased 40% over the past 7 years due to numerous types of overspending by Congress and Bush's refusal to veto any of it. If it can so easily go upo 40% in a few years it can easily go down 40% in a few years unless you think that Clinton was a miser who did not support social welfare programs. Taking the budget back to the Clinton years will hurt no one to any great degree unless you think Clinton short changed people and that people suffered under Clinton for lack of programs and spending.40% decrease in the budget will more than offset any tax decreases by McCain.
Also of course Obama has proposed a trillion dollar health care plan as well as billions of dollars of other spending programs that you did not list.
And of course none of your analysis took into consideration the present economic crisis which will even more limit the abillty of government to pay for Obama's programs.
3. First of all the economic crisis will significantly reduce the earnings and therefore taxes of the rich.
Currently that top 5% of earners pay 70% of the taxes. The point is that because of their relatively small numbers compared to the middle class the rich simply do not have much more to give. How much do you want to tax the rich 80%, 90%, 99%?
4. It is clear from history that cutting taxes increases the tax revenues because it increases business profits increases employment and therefore more taxes are taken in. This was proven in Reagon's second term and during Clinton's second term as well.
The reason that the Bush tax cuts did nto elimniate the deficit ist twofold.
1. The Clinton surplus was mostly due to the dotcom bubble and when that broke in 2000 the deficit was eliminated. Thge deficit was dissapearing during Clinton's last two years before Bush took office. For proof of this I refer you to Alan Greenspan's book as he was the Fed Chairman during this crucial time.
2. The surplus was eliminated by excess spoendign of congress and the failure of Bush to veto ANY of thids spending. As mentioned above spending has increased 40% since the time of Clinton.
So the Bush tax cuts surely did increase tax revenues but it was not enough to make up for the widly increased spending. The data to support this is readily available from the IRS. The Bush tax cuts increased tax revenues.
Here is an excerpt from an article in National Review in 2007 about this issue: "About a week ago the Wall Street Journal documented the growth of federal revenues since the Bush tax cuts were enacted in 2003. The numbers and the implications are substantial. Total revenues in this period are $785 billion, a huge amount; the federal deficit has fallen to about half the average of the last fifty years; and overall revenue is now 18.8 percent of GDP, which compares favorably with the 18.2 percent average of the past forty years."
One more thing and perhaps it is the most important thing. The Democrats talk about taxes as if it is their money as if it is something we owe them. This is OUR money and taxes are the government's way to steal our hard earned money in order to give it to somemone else. I am all for charity, but I want to have the control over where my monney goes and I do not want Nancy Pelosi deciding where it goes. She can give her money wherever she wants to but she has no right to take my money and give it to whomever she wants to give it to.
Also while I do not earn close to $250,000 that surely is not rich these days. Most doctors, lawyers and small businessmen make that much.
Steve Askotsky also makes some excellent points and for my money I still cannot get over Obama sitting in his church listening to his MENTOR and Pastor and good friend villify Israel for 20 years. In addition of course he was in bed with the anti-Israel Islamic groups in Chicago. He told his Muslim friends (there are many pictures of him with Muslim groups for years but none of him with Jewih groups until this year), and this is well documented by one of his Muslim friends in a video on youtube that was also aired on TV and written in newspapers, that Obama told him that he has to placate the Jews to win the election but afterward he will again show his strong support for the Palestinian Arabs over the Jews.
I truly cannot understand how any Jew can vote for such a man regardless of his stated policies.
There is one other thing that has been bothering me lately regarding Obama.
Besides the fact that he has no record of accomplishment in anything, I have been reading a book on his background and found some very interesting things that may explain some unusual behavior. Before going into that I would just like Mr Glazer or anyone to list the political accomplishments of Obama. Not his job titles but what has he accomplished. For example, when he was community organizer how many people did he help and actually what did he help them with? Also how satisfied were his constituents with the work that he did? Obama has never made an executive decision as a politician so he has NEVER made a decision that effects the lives of others for which he had to take responsibility. When this is combined with the fatcs below, what emerges is really quite worrisome for a president.
So on reading Obama's past I find that a recurring theme is abandonment. His father, an alcoholic bigamist with 4 wives and at least 6 children in two continents, abandoned him at birth, his step father abandoned him at about 3 years old and his mother abandoned him as a pre-teen.
Then we see him as an adult abandoning his mentor and pastor of 20 years. To justify this to the nation he gives a major speech in which he abandons his grandmother, the only seemngly constant in his youth. Obama said that he could not disown Pastor Wright anymore than he cam disown his own grandmother. It is hard to believe that he compared his hate filled anti-Semitic insane pastor to the woman who raised him and paid the bills (he went to a costly private school in Hawaii). And what was the comparison? His grandmother once remarked that she feared the Black panhandlers while she took the bus to work every day for a job that supported Obama. This was somehow equivalent to the racist and almost insane remarks of Rev Wright. So Obama readily thre hs grandmother under the bus to save his political career.
If Obama would abandon his 20 year long mentor as well as the only stable force in his youth, his grandmother; then why do you think he will not abandon you as soon as he is elected?
Obama has already told his Muslim friends to cool it as he will chnage his tune ion Israel once elected. He has already told the Canadians to cool it as he will change his tune on NAFTA as soon as he is elected. Obama has no loyalties to anything or anyone and no qualms about abandoning people and positions.
Then compare this to McCain who allowed himself to be tortured for 5 years rather than to turn his back on his colleagues. Or McCain choosing an very unpopular policy, the surge, because his convictions and duty to country far outweighed his ambition.
Is there really any choice this election?
Amen, Ivan. Gerry, I ask you to consider the following: If Joe Lieberman had become a Republican -- which isn't so far-fetched -- and won the Republican nomination, and was articulating essentially the same policies as McCain, would you be supporting Obama in order to stop Lieberman? Please consider.
Here is an article based on a study by folks at the Brookings Institute that makes the case that Obama's "tax cuts" are really "marginal rate hikes in disguise:"
The Folly of Obama’s Tax Plan
By Alex Brill and Alan D. Viard
Friday, August 8, 2008
Filed under: Economic Policy, Government & Politics
Senator Obama’s proposed ‘tax cuts for the middle class’ are actually marginal rate hikes in disguise.
Senator Barack Obama declared recently that he wants to “reform our tax code so that it rewards work and not just wealth.” We think that is a great goal if it means a simple tax system with low marginal tax rates. Unfortunately, a close inspection of Obama’s proposals reveals something disquieting: he would raise marginal tax rates for many middle-income taxpayers, a bad move for anyone seeking to promote economic growth.
Although Obama is offering a new series of tax breaks, they undermine rather than improve economic incentives. First, whether or not you get those breaks will depend on your income. In Washington, taking away tax breaks as families work harder to make more money is called a “phase-out.” Economists have a different name for it—we call it a tax. Reducing a person’s tax credit as his income goes up also reduces his incentive to earn more income.
Second, Obama would make some credits refundable for families with credits bigger than their tax liability, which would also have the nefarious effect of raising marginal tax rates. For example, consider a worker in the 10 percent bracket with $1,000 of tax liability before credits who claims $1,200 in credits. The tax impact of earning an extra $100 depends on whether the credit is refundable. If it’s not refundable, there’s no tax penalty on earning the extra $100 because the worker’s tax liability stays at zero. But if the credit is refundable, earning the extra money pushes the tax up from negative $200 to negative $190—that’s a 10 percent penalty on earning income.
Although Obama is offering a new series of tax breaks, they undermine rather than improve economic incentives.The solid line in the nearby chart illustrates the effective marginal tax rate under Obama’s tax proposals (based on the authoritative “Preliminary Analysis of the 2008 Presidential Candidates’ Tax Plans,” published by the Brookings Institution/Urban Institute’s Tax Policy Center). These are the marginal rates in 2009 for a two-earner couple with two children—a college freshman and a 12-year-old receiving after-school care—under some specific assumptions. For comparison, the dotted line on the chart illustrates the effective tax rates under current law. The rates shown in the chart are not spelled out in the tax code; they are the result of giving and taking away tax breaks as the household’s income changes.
As the chart shows, Obama’s give-and-take tax policy results in marginal tax rates of 34 percent to 39 percent in the $31,000 to $45,000 income range for this family. That’s an increase of 13 percentage points or more from the current rates.
What accounts for the higher rates? First, Obama expands the maximum child and dependent care credit for families with one young child from $1,050 to $1,500 and phases down the credit over a longer income range, from $30,000 to $58,000. Throughout this income range, the credit is phasing out at a rate of $30 per $1,000 of income, thus raising the effective tax rate by 3 percentage points. Obama also makes certain credits refundable, which introduces a tax penalty of 10 percent or 15 percent, depending on the income bracket.
While Obama has publicly embraced a tax rate of 40 percent for couples earning over $350,000, his tax policies would result in a staggering 45 percent effective marginal rate in the $110,000 to $120,000 income range for this family. That is 11 percentage points higher than under current law.
The culprit in this case is Obama’s proposed reform of the Hope Scholarship Tax Credit for college tuition, which he would rename the “American Opportunity Tax Credit.” He would increase the credit’s maximum value from $1,800 to $4,000 while still phasing out the credit over the same income range, $100,000 to $120,000. The larger phase-out would boost the penalty on work from 9 percentage points to 20 percentage points.
Although Senator John McCain would not eliminate the existing phase-outs, he would avoid adding new ones, with one small and temporary exception. While McCain has proposed increasing the personal exemption for children, he would make it immediately available only to lower-income taxpayers. Until the bigger exemption is offered to everyone in 2016, some households would face an additional effective marginal tax rate of about 2 percentage points.
To be sure, Obama’s proposals would not tarnish an otherwise pristine tax code. As the chart shows, the U.S. tax code is already littered with phase-ins and phase-outs. For that matter, it’s hard to know how much phase-outs actually discourage people from earning additional income. Because the phase-outs are so hard to decipher, many Americans may ignore them when making their work and saving decisions. Of course, those people are still burdened by the long and frustrating IRS worksheets required to compute the value of their tax credits; and creating a more confusing tax code certainly does not make for good government.
While both candidates will reduce their tax plans to clever sound bites, voters should consider how those plans would affect incentives to earn income. Unfortunately, Senator Obama’s proposed “tax cuts for the middle class” are actually marginal rate hikes in disguise.
Alex Brill is a research fellow and Alan D. Viard is a resident scholar at the American Enterprise Institute
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