Tuesday, October 7

Obama 2008: Taxing out of Spite and Socialism

Barak Obama is looking forward to raising taxes on the rich if he happens to get elected President. One would think that he plans to use the additional revenue to redistribute the income to the poor. Unfortunately, often the end result of raising taxes is less total revenue. Sure you can say that this might be compensated by more revenue from the part of the population whose tax rates are to be reduced, but many of them already don't pay any taxes, so there is no additional benefit to the Government if they make some extra money.

The Wall Street Journal in this editorial (Obama's Tax Evasion) pointed this increase taxes/reduce revenue fact out to Senator Obama. The WSJ's inspiration for this editorial was the Democratic Primary debate in Pennsylvania where Senator Obama avoided answering the question:
But Mr. Obama has also said he's open to raising – indeed, nearly doubling to 28% – the current top capital gains tax rate of 15%, which would in fact be a tax hike on some 100 million Americans who own stock, including millions of people who fit Mr. Obama's definition of middle class.

Mr. Gibson dared to point out this inconsistency, which regularly goes unmentioned in Mr. Obama's fawning press coverage. But Mr. Gibson also probed a little deeper, asking the candidate why he wants to increase the capital gains tax when history shows that a higher rate brings in less revenue.

"Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20%," said Mr. Gibson. "And George Bush has taken it down to 15%. And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28%, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?"

Mr. Obama answered by citing rich hedge fund managers. Raising the capital gains tax is necessary, he said, "to make sure . . . that our tax system is fair and that we are able to finance health care for Americans who currently don't have it and that we're able to invest in our infrastructure and invest in our schools. And you can't do that for free." - WSJ
But Mr. Gibson had noted that higher rates yield less revenue. So the news anchor tried again: "But history shows that when you drop the capital gains tax, the revenues go up?" Mr. Obama responded that this "might happen or it might not. It depends on what's happening on Wall Street and how business is going." And then he went on a riff about John McCain and the housing market.

This is instructive. The facts about capital gains rates and revenues are well known to our readers, but we'll repeat them as a public service to the Obama campaign. As the nearby chart shows, when the tax rate has risen over the past half century, capital gains realizations have fallen and along with them tax revenue. The most recent such episode was in the early 1990s, when Mr. Obama was old enough to be paying attention. That's one reason Jack Kennedy proposed cutting the capital gains rate. And it's one reason Bill Clinton went along with a rate cut to 20% from 28% in 1997. - WSJ
Well, it seems that us 'simplistic' Americans are not in tune with the sophisticated reasons for taxing the rich. So leave it to a British Accountant to explain it to us:
Tax is not just about raising revenue. There are five reasons for raising revenue (four ably summarised by Alex Cobham of Christian Aid and formerly at Oxford University, the fifth added by me):

1) Revenue raising
2) Repricing goods to correct market imperfections
3) Redistributing wealth
4) Representation of the relationship between government and the governed
5) Reorganisation of an economy by use of fiscal policy
Found at Tax Research UK
Redistributing wealth is another way of saying 'Income Redistribution.' What is that you ask?
Income redistribution refers to a political policy intended to even the amount of income individuals are permitted to earn.

The basic premise of the redistribution of income is that money should be distributed to benefit the poorer members of society, and that the rich should be obliged to assist the poor. Thus, money should be redistributed from the rich to the poor, creating a more financially egalitarian society. Proponents of redistribution often claim that the rich exploit the poor or otherwise gain unfair benefits. Therefore, redistributive practices are justified in order to redress the balance. - Wikipedia
Basically, some politicians use income redistribution as a way to take money from people who earned it, and give it to those who don't, in exchange for votes. (to this day I remember this phrase used in 2000 by the WSJ as an explanation of why the Liberals in Canada were doing well.)
Over the past 40 years, Canada has tried to define itself as gentler than the U.S. This initially meant universal medical care and strict gun control, but expanded to mean a process of taking money from people who have earned it and redistributing it to people who haven't, more or less in exchange for their votes. Canada is the only country that has enshrined regional economic equality as a constitutional objective, thus committing itself to the impossible proposition of moving resources to people instead of the other way round. - The Most Boring Election in History, WSJ, 3 Dec 2000
One of my MBA courses was 'Managerial Accounting'. It was a course that was supposed to teach not only about managerial accounting but also to remember that a managerial accountant is an important member of a corporation's decision making team.

Of course, managerial accountants have wrecked havoc in our modern society, and it all started with a managerial accountant who assigned a cost to the olives placed in prepared salads:
It all began with the olive. Nearly 20 years ago, American Airlines, in the face of competition, made the first cost-cutting move - eliminating one olive from each salad it served its passengers.

But what began as a gradual decline in amenities at the big airlines has turned into the biggest attack ever on costs, particularly in coach class.

Since December, some of the big U.S. airlines have taken away the free pillows, magazines and curbside baggage service. On Thursday, Northwest Airlines eliminated another "frill" - the small bag of pretzels for passengers. Even though the cost works out to pennies a bag, the airline, which carried 40 million passengers worldwide last year, said that it would save $2 million a year.

The cuts mean that anyone flying in the United States during this summer's hectic travel season will find that a relatively cheap ticket on a big airline buys the flight and little else. - IHT
In terms of income redistribution, Obama is calling for just that:
While Mr. Obama claims his tax increases will pay for "tax cuts," much of his increases are actually earmarked for a massive new spending program that will send tax "rebate" checks to 45.6 million filers who have no income tax liability. These filers will get a check of up to $500 a person or $1,000 a couple even though they do not pay federal income taxes. - WSJ
Conservatives like myself think that the poor get enough already and think that many of them are totally taking advantage of the system. As an example, while driving to work, I listened to a report on NPR (this is a similar report, but not the one I heard on the air: Thousands Apply For Help Paying Utility Bills In D.C.) One person interviewed who was applying for assistance with paying her energy bills was a woman whose only income was a $395 monthly payment from some unnamed Government program. She was complaining that with she could spend that much money a month in gas alone.

At first I got mad in that yet another freeloader was complaining that they Government didn't give away enough money so that she could freeload in style. But then I actually realized that this lady deserves some credit for actually managing to live off of $100 a week in income. That does deserve a compliment.

The report linked above has another government aid only for income woman complaining that since she lives off of fixed income (Government Aid) that her energy bills should be fixed as well. Not mentioned nor discussed is how about getting these people to do some work for additional income. So you got $400 for free, even working part time will greatly increase your income.

Washington, DC has a minimum wage of $7.55. Even working just 10 hours a week (2 hours a day) will increase income by $75 dollars a week. Working 20 hours a week will increase weekly income by $151. That is in addition to the $100 they are getting free. Working full-time (40 hours a week) will increase monthly income to $1,200, but lets say that she has some 'issue' preventing her from working full-time. But then again, working full-time might result in her losing the Government support, so perhaps getting her to work full-time is too much to ask for. Certainly she will be quick to point out that She would actually earn less than that due to taxes. All I can say to that complaint is welcome to our world.

Remember that there are many more people like these women who do no work other than collecting Government aid/welfare. How Many More People Do the Democrats Expect Me us to support by giving them money taken from us through taxes? Senator Obama wants to give these people more support because it is getting tougher for them to freeload off of the monies they get now. This is how socialism works and its wrong.
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