Obama’s Plan to Ensure he Discourages the Economic Growth he Promises

Posted on August 29, 2008. Filed under: Obama's Grand Plan for Change |

Obama finally came down from the mountain and read from the stone tablets. America finally got the privilege of learning what the plan was to bring about all of the change that Obama has been hyping now for what seems like a decade. So exactly how much ‘meat’ was added to the change skeletal system? That is a question that will be reviewed over the next few days on the Anti-Obamassiah Refuge. The first subject that will be tackled is Obama’s economic plans. He has promised a lot to the electorate. Among some of the pledges he has pledged to bring healthcare to every citizen in the US, create more jobs, prevent companies from shipping jobs overseas, invest $150 billion on alternative energy sources, and even lower taxes for, “95% of all working families.” Just how does he plan on delivering all of this? To quote the great one’s acceptance speech, “Now, many of these plans will cost money, which is why I’ve laid out how I’ll pay for every dime, by closing corporate loopholes and tax havens that don’t help America grow. But I will also go through the federal budget, line by line, eliminating programs that no longer work and making the ones we do need work better and cost less..” To run this through the political speech to normal speech translator, this now reads, “We are going to take every penny we can from businesses in America because they are the cause of the problem. Even though corporate profits are already double taxed, first when the company reports the earnings, and again when the dividend is distributed to investors, the US Government can squeeze another round of taxes out of them to redistribute, not only to those with a vested interest in the company but to everyone in the nation.” Now, it may sound like socialism but remember this is Obama so it isn’t socialism but rather the Devine plan. Taking a look at what Obama says he will give people through new government programs shows his utter lack of even a basic understanding of economics.

Obama wants to assume massive programs with astronomical price tags. To give an idea of what his healthcare plan will cost, the 2008 budget estimated that the US Government will spend $325 billion on Medicare and another $186 billion on Medicaid. That is a total of $511 billion for 2008 alone. If you add in social security at $544 billion and all other entitlement spending of $357 billion, the government will spend  $1.42 trillion dollars on all entitlement programs. Current revenue is estimated for 2008 to be $3.307 trillion and this figure comes from many consecutive quarters of positive GDP growth. Many estimates on universal healthcare like Obama is proposing puts the cost about equal to the nation’s entire GDP. This isn’t a hard figure to believe when considering how many more people the United States will be looking to insure. As of 2003, 14% of the US population received Medicare benefits. In the same year, approximately 17% of the population was covered by some form of Medicaid. (Figures based on www.statehealthfacts.org numbers.) For government healthcare programs alone, the government already spends about 15% of its budget. However, what must be remembered is that this amount usually still leaves outstanding balances with many of the states. In Illinois alone in 2006, Medicaid still owed state hospitals and doctors about $1.5 billion. (Figure from The Case Against Barack Obama by David Freddoso.) All of the past proposals Obama has made for universal healthcare come to the same end, bankrupting the United States and essentially a government hijack of all corporate profits. This throws a wrench in his two promises to create more jobs and increase salaries because corporate profits are what companies use to pay employees and create more jobs.

By counting on paying for his new spending programs largely through “closing corporate loopholes” Obama is showing little understanding of what effect this will have on his other economic promises of delivering more jobs with higher pay. Furthermore by claiming he will only close some loopholes, Obama is being very deceptive on what he will actually end up doing. In his speech, Obama correctly states that the last thing that should be done in a faltering economy is increase taxes, but he was only half correct because he limited his statement to private individuals. Most individuals in the United States are employed in the private sector. Private sector businesses all have one main purpose for their existence and that is to increase the wealth of its owners. Whether it is a sole proprietorship family business or a multinational conglomerate, all businesses share the same purpose of providing profits for the owners. And why should this be any other way? The business owners are the ones that create the idea and they often risk everything they have just to start the business. Ownership stretches beyond the big, corporate fat cats that Democrats are always deriding; ownership goes all the way down to anyone who owns as little as one share of stock. A majority of Americans own shares of stock either outright, through a mutual fund, or in a retirement account such as a 401K or an IRA. Employees that receive pensions have a vested interest in company profits because those pension funds have a portion invested in stocks in order to make the pension grow so it will be able to pay all employees of a firm as they retire. Therefore, taxing a company is not a quick source of money as Senator Obama seems to suggest.

All companies, no matter their size, also have to pay the costs of running their business. These costs include paying utilities, raw materials, but also employee salaries. The less profit that is available to a company, the less money there is to pay its employees. This is also why Obama’s plan to heavily increase the taxation of companies will directly impede him from keeping his promise of creating more jobs at higher levels of pay. In fact, the only way for his plan to work, is to ensure companies will have more profits. Most companies are always looking to grow because the easiest way to increase profits is to increase the amount of business. When a business grows, jobs are created because there is more work to perform. Also through business growth, other businesses in other industries grow because most expansion requires construction of new facilities, programmers for new computer systems, and increased products require more shipping capacity, sales forces must be increased, support staff must be expanded, and so on. This is the main theory behind supply-side economics and it is a theory that has worked throughout history. Detractors of this theory claim that the corporations only pocket the profits and do not expand their operations. However, this is a bad business decision for a company to make. In order to continue to increase profits, a company must be able to perform higher levels of business. This is only possible through expanding their current operations. During the Great Depression, Franklin D Roosevelt mandated that companies distributed all of their profits when they made them, however, he quickly found out that this kept corporations from saving enough to make major expansions and also forced many companies to cut employees when business took a temporary downturn due to the company not having any savings in order to pay salaries through the hard times. But the key to this expansion is more corporate profits and incentive to grow. The number one way the government can affect corporate profits in the private sector is to lower taxes and remove trade barriers.

Obama also wants to keep American jobs from being shipped overseas, or outsourced. This is a noble desire because no one wants to see Americans lose their jobs. However, most outsourced jobs are low skill jobs that other countries can provide for much lower wages. Since a company’s number one objective is to increase profits for the owners, the company would be making a bad decision to not outsource those jobs. By outsourcing the low skill and lower wage jobs, the company can use the savings from the cheaper labor to expand facilities to offer more Americans more high-skilled and higher paying jobs. The best example of why this must happen can be illustrated with the invention of the automobile. When the automobile was invented, there were many horse and buggy dealers and manufacturers (at least for the buggies.) When the car gained popularity and replaced the horse and wagon as the primary means of transportation, there was no longer a need for the previous number of horse and wagon dealers. Therefore, those dealers had to close in order to make way for the new technological advancement. But while the buggy dealers closed, car manufacturing plants, car dealerships, service stations, and repair shops all grew. The same is true with unskilled labor. The United States has one of the highest skilled and highest producing labor force in the world. In order to maximize profits, a company must be using its resources in the most efficient way. If a company is forced to overpay a labor force that is overqualified for the work, the company is being unnecessarily stunted from competing at the highest level. In the global economy that Obama mentioned, companies must be running more efficient than ever in order to stay alive. If the United States required everyone to use a typewriter instead of a computer to save the jobs of those employed in the typewriter industry, the US would quickly fall behind every other global economy that is computerized. This is a global economy and the stakes are high all around the world. Businesses must be efficient and expanding in order to consistently compete in this market. Another positive from outsourcing labor is that it helps developing nations with standards of living much lower than the United States’. US companies are able to provide pay that is quite lower than what they would have to pay a higher skilled US employee and still offer the foreign employee wages much higher than they could earn working for a local business.

As mentioned, it is extremely difficult to see good, hard American workers lose the jobs they have held for years but in order to stay competitive in a global market and be able to provide the most jobs over the longest amount of time, companies must be able to increase their profits in order to increase their growth rate and eventually move to producing new technologies. There will always be a market for the American worker because there is no better worker in the world. Examples are seen by Honda and Toyota opening US manufacturing facilities. But in order to make the most money for everyone from the worker on the factory floor to the CEO on the top floor, businesses have to be efficient. Keeping American workers in unskilled jobs instead of outsourcing those jobs will only hinder growth and take away the workers’ chances of receiving higher paying, more skilled employment.

Before Reagan took office in 1981, the top marginal tax rate for individuals had risen to 75%. That means that out of all dollars earned in that tax bracket, the government took $0.75 out of it, leaving the wage earner with a quarter. This really discourages anyone from wanting to earn many dollars at that level. Since George W. Bush implemented his tax cuts, the revenues brought into the Treasury Department have steadily grown. That is correct, taxes were decreased and the money collected in taxes increased. This is because people and businesses have a higher incentive to work and earn more because the government is taking less from them by the end of the day. It is on this topic that Obama made his most dishonest point in his whole speech. Obama declared that John McCain was out of touch because in a recent interview he said that people earning over $5 million a year were wealthy. The context of McCain’s quote was exactly the opposite as Obama used it. When McCain made his quote, he was talking about taxing wage earners less. Obama had recently stated that anyone making over $250,000 a year was considered a top earner that needs to pay their full share, which is code for saying they are whose taxes he will raise substantially. McCain had said that he disagreed with Obama’s level of income for the wealthy that should have increased taxes. McCain said that someone making over $5 million could be considered a top wage earner for these purposes. So what was the point McCain was making? McCain was making the case that Obama had set the bar too low for individuals that are making too much and therefore should have their wealth redistributed to the less fortunate. McCain was making the case that more of the US taxpayers should receive tax breaks than Obama was proposing.

Obama has also been on the record proposing to increase the dividend tax along with capital gains taxes. This is another common target for a Democrat looking for socially acceptable tax money to take from the big bad corporations and their fat cat stockholders. The only problem with this is that company dividends are already taxed twice. Dividends are the profit that is distributed to the company’s owners, or shareholders. Dividends are first taxed at their marginal tax rate (usually around 35%) when the company reports their earnings. Then the dividends are taxed again when they are distributed to the shareholders at another 15%. Obama would like to raise the tax paid by the recipients of the dividends to anywhere from 20% to 25%. The decrease in the dividend tax rate was part of the Bush tax cuts and it ended up generating more money for the federal government in taxes collected from dividends. Bush had also cut the capital gains taxes which are the taxes generated when stocks or other investments are sold for a profit. The reasoning here is that when the capital gains taxes are raised, investors will just hold onto any investments they have that would generate a capital gains tax. Basically, instead of selling stocks they hold for a profit, investors will hold onto them and wait for a more tax-friendly administration. This discourages investment because no one is really eager to put money in the stock market only to have their gains taxed at a high rate. In order for an investor in the stock market to make a profit buying and selling stock, the stocks they buy must appreciate high enough so the investor can pay whatever charge they incur to buy it (usually in the form of a broker commission) and the stock price needs to appreciate high enough to cover the taxes they will pay. By raising the dividend and capital gains taxes, it increases the amount stocks must appreciate to turn a profit, in turn discouraging investors from putting money in the market.

Obama’s plan is the same as pretty much every other Democratic presidential candidate to come before him. He is looking to give away more money than the United States can afford to pay through new entitlement programs. But to make up for the shortcomings, Obama has the traditional liberal idea of taking company profits and redistributing them throughout the population. This is not what the American dream that he speaks of was founded on. The real American dream is a system that rewards those that take risks, whether the risk is starting a company or buying a share of stock, the American system is in place where the level a person can be rewarded is only limited by how much risk they take and work they put in. Yes, sometimes people do fail and there are plenty of programs in place now to help get those people back on their feet and ready to take their next opportunity. This is also a society that takes care of those who are unable to take those risks. But one thing is certain; this country was not founded upon taking disproportionately from those who do succeed in order to support those who refuse to participate. America promotes everyone’s right to life, liberty, and the pursuit of happiness. Success is not guaranteed but it is the government’s job to provide every citizen a level playing field and access to the game. As shown by the millions who arrive here each year, there is nowhere else in the world that offers the same type of rewards as the United States. But the only guarantee that the chance for success will be there for all generations requires that the government take as little as possible from the players.

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    Is this really a new type of politician? Or is the Obama machine just using politics as usual in their campaign?

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