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Mr. Obama would tax income of over $200,000 for social security, even though that would mean that citizens would pay in more than they would be allowed to be paid back. This would institutionalize socialism in retirement. So far social security has been (allegedly) a government saving account. Money is collected from you, then is "held"(though really spent and replace with IOU's) and remitted back to you at retirement(though at a horrible interest rate). For the first time, Mr. Obama's proposal would institute income redistribution through Social Security.
This would also create an additional cost for employers, as they too would be forced to pay the tax. This would reduce incentive to hire for high-paying jobs.
Mr. McCain proposes to set the Death(Estate) tax at 15% after 5 million, Mr. Obama proposes 45% after 3.5 million. In other words, Mr. Obama proposes to seize roughly half of any significant amount of money accumulated during a person lifetime at their death. After paying significant taxes (even more significant under his income tax plan) their entire life, the government will take roughly half of whatever is left, before anyone else gets anything. A rate even higher than the highest income tax rate under his plan. This is, plain and simple theft.
Such a proposal can only result from the thinking that money is the property of the government, and is only on loan to individuals. How else can one justify this type of robbery: On any given 1000 dollars in income in the top bracket saved, income taxes would take all but $604, then the death tax would take $271.80 , and the heir would receive $332.20. The effective tax rate would be 66.78%. This is brutally punishing success, literally taking almost 70% of a person's life work.
Mr. Obama would raise Capital Gains taxes along with taxes on dividends. Mr. McCain would keep them at current levels. Capital gains taxes inhibit investment. With an already negative savings rate, the last thing that we need to do is reduce the incentive to save and invest in the future.
While Mr. McCain has plenty of ill-advised policy proposals, Mr. Obama's tax proposals are not only dangerous, but very misrepresented in the media. By only focusing on income tax, they are giving a very large and unfair advantage to Mr. Obama.
Mr. Obama also proposes to increase minimum wage every year indexed to inflation. This would create the possibility of a near permanent wage-price spiral, and thus out of control inflation. As indexing the minimum wage every year would not provide real benefit to the wage-earner, as the buying power would remain the same, by definition, the primary effect would be to inhibit the ability to create wealth. By insuring continually high inflation, it is very difficult to out earn it, much less it and Mr. Obama's high taxes. What this proposal is would create is not even wealth redistribution, but universal poverty.
3 comments:
I wish I had more time to respond to this post, because I disagree vehemently with almost every sentence of it.
First, Sen. McCain may propose cutting taxes, but proposed tax cuts without corresponding specificity in spending cuts is really just borrowing from the next generation, who will face higher tax rates and a less robust economy as a result. For instance, Sen. McCain calls for $159 billion in "unspecified budget cuts."
See: http://yglesias.thinkprogress.org/archives/2008/08/promises_promises.php
See also: the non-partisan Tax Policy Center's analysis of the two candidates tax plans
It's hard to give these line items much credence, particularly since Sen. McCain will have no mandate for such draconian cuts if he is unwilling to explain before the election which programs he is placing on the chopping block. The fact of the matter is, since LBJ, overall spending has grown faster during Republican administrations than in Democratic administrations. Sen. McCain's rhetoric shouldn't be given much weight.
Second, I don't have time to find a citation, but Social Security is already redistributive and has been for a long time. I start from a presupposition that progressive policies are presumptively valid in a society with such massive inequality of wealth (see below) -- I realize that you do not. But, there's no denying that Social Security dramatically slashed elderly poverty by more than 20 percentage points.
Third, economists generally agree that employers don't bear the economic burden when they pay their 'half' of the OASDHI taxes. This is merely a fiction designed to hide the magnitude of the tax.
Fourth, the estate tax under the proposals put forward by Sen. Obama would affect less than one half of one percent of all estates, which is a massive concession in and of itself.
One should note that the 45% rate is only on the value of the estate over and above the exemption level. So, you have a $7 million exemption per couple, and the ability to transmit money to your future heirs in the form of gifts up $1 million over a lifetime.
Moreover, the estate tax is meant as a backstop for massive capital gains that have not been realized prior to death. If not for the estate tax, these assets would be transmitted to heirs with the cost basis lifted to the value at the time of death, without any tax ever paid. See the following from CBPP: "Income taxes on the appreciation of assets, such as real estate or artwork, are only paid when the asset is sold. Therefore, the increase in the value of an asset is never subject to income tax if the asset is held until a person dies. These "unrealized" capital gains can make up a significant share of an estate’s total value (http://www.cbpp.org/6-17-05tax.htm), especially among large estates — the ones likely to owe estate tax....One reason the
estate tax was created was to serve as a backstop to the income
tax, taxing income that was never taxed under the income tax. That
is, the taxation of this income is essentially deferred and ultimately taxed for the first time through the estate tax."
Source
Perhaps most importantly, American society is witnessing income inequality not seen since the run-up to the Great Depression. See the best data on this issue from economists Thomas Piketty and Emmanuel Saez (Source.)
Teddy Roosevelt pushed for an estate tax because he feared the slow creation of aristocratic society. Intergenerational income and class mobility is already lower in the U.S. than in most other industrialized nations (contrary to popular mythology about the American Dream). The abandonment of the estate tax would exacerbate this problem and would substantially increase our future indebtedness unless offset by corresponding spending cuts.
Finally, capital gains rates would only return to Clinton-era levels (indeed, marginal tax rates would only return to Clinton-era levels as well). My recollection is that time period wasn't so bad for the American economy... Moreover, the top rates discussed today are far below the historical average of the past fifty years.
Perhaps we were on the wrong side of the Laffer Curve before, but the American economy seemed pretty robust during this time frame.
Indeed, with capital gains rates less than half the top bracket, returns on wealth are treated far more favorably in our current system than the return on labor, which hardly seems to fit with the American ethic.
First, let me say that my (strongly worded, yes) critique of Obama's policies should by no means be constructed as a ringing endorsement of McCain(Palin is a little better, but still far from ideal). In my mind he is at best the lesser of two evils. The closest statement in my post to a backing of McCain is a note that I think the media is presenting the tax ideas of the two dishonestly.
I agree that Social Security may have redistributed wealth in the past, but to essentially add a upper(middle)class surcharge takes it to a whole new level of intent if not practice.
I do not doubt for a second that Social Security has reduced elder poverty, I would hope by much more than 20%, since that is one of it's primary goals. I simply do not believe in taxing the young to subsidize the old, who already had a chance, in many cases in a better economic climate.
If the employers pass on the costs of the tax, it goes to the consumers. It still creates a drag on the economy.
Indeed it is on the Death/Estate tax that we disagree most directly.
First, though I am not a CPA and therefore may be missing something, I believe the more correct number is 3.5m, since the couple is one legal entity in most cases, and would not generally have separate estates, since coincidental death is rare for wealthy couples outside of foul play. Though, this is a somewhat minor point in my objection to it.
I do not see a great tragedy in property escaping one wave of taxation, especially as the estate as a whole has been, in all likelihood taxed quite extensively during the lifetime of the taxpayer. Even if such taxation was justified, why such a high rate? Why more than double the capital gains rate. Why significantly higher than the highest income tax bracket?
Even if I agreed that dynastic wealth should be punitively taxed, 3.5m/7m is a very low figure. Depending on the part of the country, it's a nice house, some stock,some jewelery and misc. personal effects. In nicer areas, it's a house and nothing more. Dynastic wealth would be more on the order of 100m or more, depending on the number of heirs.
Onto areas which we are even less likely to agree...
The wealth inequality in America is due to an ambition inequality and nothing else. Those Americans who are poor are not locked into agrarian or early industrial systems where their birth class keep them locked into a inescapable rut. They are those who made less than ideal choices. They didn't choose the ideal job path. They didn't choose a second job while keeping expenses low. They chose sex and drugs, and got the consequences of them. They chose to buy a big TV instead of a mutual fund. They chose to use a credit card instead of cash. Etc. This doesn't make them morally bad people. It makes them economically poor people. I made less than ideal choices. That's why I'm not one of the dynastic rich. Because I made less than ideal choices, not because someone else is holding me down. When my good choices outweigh my bad choices, I'll get to pay all the success taxes, and spend whatever is left on what I want.
in response to Jeff's point: "Fourth, the estate tax under the proposals put forward by Sen. Obama would affect less than one half of one percent of all estates, which is a massive concession in and of itself."
Let's say I decide to do something really heinous... like murder. And, in my maniacal evildoer state of mind, I decide to wipe out the entire U.S. population. I issue press releases and the news outlets run stories, "ENTIRE U.S POPULATION TO BE DESTROYED TONIGHT. MORE AT 11... POSSIBLY."
But then something intervenes in the story, and I end up killing only 0.5% of the population. Whew, what a relief -- 99.5% of Americans survived!
By the logic outlined above, it's not so bad for me to go out and murder 1,525,671 people. That's a lot of people, you say... but that's actually only one half of one percent of the U.S. population (305,134,154, according to the U.S. Census Bureau), which is not, when you consider killing the entire U.S. population, statistically significant. At least I did not murder everyone.
At the same time, this does not take into account the opinion that taking another's life is fundamentally wrong. The reader is so busy being relieved that I didn't kill everyone to be outraged that I killed anyone.
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A second example is a flock of sheep under attack. Sheep are not intelligent, and, as far as we know, they don't do too much individual thinking aside from, "ooh, there's some nice grass." When a predator invades the flock, the sheep scatter slightly and run. They regroup from a safe distance away, turn around, and watch the sheep that was/were caught. Then they go back to grazing, more or less relieved -- to the extent that sheep feel relief -- that it wasn't them.
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Now, apply this reasoning to taxation. Most of the population is going to be so relieved that they aren't the ones paying outrageous tax rates that they are not going to understand (or bother trying to understand) why it might be wrong for those that do pay the outrageous tax rates.
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