Would Obama really deliver on tax cut promises?


By: Robert E. Meyer

Senator Barack Obama once again reminded us during his Friday evening debate with John McCain at Oxford Mississippi, that his tax cut proposal will benefit 95% of Americans, omitting only the wealthiest taxpayers.

I have several problems with the ramifications of this statistic. First of all, far less than 95% of Americans pay federal income tax above the $1,000 level that Obama plans to return as a rebate. In fact, many pay no income tax at all, which means that his proposal would really amount to a transfer of wealth for those people, not a tax cut.

Now I’m not against helping the needy, but I don’t like the idea of the federal government playing the role of Robin Hood, or acting as a charity of first resort.

Another problem is that “one time payments” are far inferior to permanent tax reductions, particularly in terms of aggregate tax savings for each tax payer over the long haul. Offering a one time tax rebate is a pandering gambit for political gain, is not a long lasting economic stimulus, and is a proportionally small reduction for those who pay large amounts of federal income taxes.

Admittedly, Obama’s tax proposal is not limited to a lump sum rebate. However, that is the feature of his plan that he chose to highlight, so he obviously believes that aspect of his plan will attract the most votes.

Those of a politically liberal persuasion have a tough time understanding how a reduction in tax rates can actually bring in more revenue to the U.S. Treasury than higher marginal tax rates.

More revenue does not translate into balanced budgets, or budget surpluses, if increased congressional spending outpaces gains in revenue. That is what is never considered when conservative economic policies have been ridiculed as counterproductive.

Opponents have apparently never heard of the Laffer curve, an economic model constructed by economist Arthur Laffer to project the ideal rate of taxation for revenue maximization. Many liberals naively joke that if lower taxes mean more public revenue, then a 0% tax rate should bring in the most money.

As an aside, and with apologies to professor Laffer, I’m not sure that I want the government to procure more revenue than is necessary to perform its constitutionally mandated functions. Still, Laffer’s curve refutes the idea that you must increase marginal tax rates to procure more revenue.

With all of Obama’s fantasizing about new spending programs, and considering his apparent ideological rejection of tax policies influenced by Laffer’s model, I wonder how committed he actually is to reducing middle class tax burden? Let’s remember that Bill Clinton made the middle class tax cut a hallmark theme of his campaign. Even after the economy grew out of its previous deficits and budget surpluses were projected, Clinton balked at the idea of returning any money, based on the belief that the federal government better knows how to use and spend your own funds than you do. Given the track record and economic philosophies of his party, can we really trust Obama to offer anything more substantial than a Milk Bone biscuit to a pack of hungry dogs?

Liberals might reluctantly agree that wealthy people do indeed pay the lion’s share of income tax, but they will then point to the income caps on payroll taxes, or observe that a greater proportion of discretionary income for the poor and middle class are absorbed by other taxes.

Perhaps so, but it is also true that the effect of other taxes amounts to regressive benefits for higher income people. For example, the person with an average salary of $90,000 a year does not get twice the benefit from Social Security as a person who makes half as much, although they theoretically have paid twice as much into the system. Obama wants to raise the cap on payroll tax, but what about the corresponding level of benefits? If the payroll tax is subjected to a higher income threshhold without a raise in maximum monthly benefit, some will be required to pay into an economic black hole.

Higher income taxpayers also tend to benefit less from social services than lower income people, based on need and qualifications for benefits.

Keeping the Bush tax reductions for all income levels is more evenhanded and plays less into the destructive envy of economic class warfare. Making the tax brackets still more progressive is unfurling yet another unnecessary evil.

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