The Path to Economic Growth Doesn’t Go Through Obama

Posted on October 28, 2008. Filed under: Articles |

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On Good Morning America, Joe Biden explained Obama’s tax policies by saying, “We want to take money and put it back in the pocket of middle-class people. It’s time to be patriotic.” Paying higher taxes is patriotic? Someone should have mentioned that to Samuel Adams in 1773 before the tea wound up in Boston Harbor. In response to a tax policy question from, the now famous, Joe the Plumber, Obama said, “I think when you spread the wealth around, it’s good for everybody.” American’s shouldn’t have any questions about Obama’s tax policy goals. Anyone who considers the economy the most important issue cannot cast a vote for Obama. All of Obama’s economic plans promote class warfare rather than sound economic theory and will crush the American economy.

Obama is proposing to increase taxes on the companies and individuals who will play the largest part in turning this economy around. Currently, the top 60% of wage earners in America pay the entire federal income tax burden. The top 10% pay nearly 65% of the total income taxes. About 40% of the people which Obama is proposing tax cuts for don’t pay any income taxes. Instead of a tax cut, Obama’s plan is a government give-away. A January 2007 study from the Heritage Foundation discovered that the Bush tax cuts resulted in the rich shouldering even more of the tax burden. In 2000, the highest 20% of wage earners paid 81.2% of the income taxes, by 2004, that figure had grown to 85.3%. During this same period, the taxes paid by the bottom 40% dropped from 0% to -4%, meaning that the average family in this group actually received a subsidy from the government. It’s hard to drop taxes any lower for this group.

America entered a 25-year period of record-setting economic growth in the 1980’s. The biggest gainers from the period were the very poorest. The recently published book, The End of Prosperity, shows the effects of tax cuts on the increase of overall wealth in America. Many Democrats would be surprised that the nation’s poorest benefited most during this period of growth. In the period of 1987 to 1996, the lowest income levels in America increased 81%. During 1996 – 2005, they increased 109%. The wealthiest income levels actually declined during this period. The top 1% saw their income levels drop 24% in 1987 through 1996 and 23% in 1996 through 2005. Therefore, Obama’s idea that tax cuts only benefit the wealthiest deserves serious reconsidering.

Most of Obama’s proposals were tried with failure under Jimmy Carter. By 1980, mortgage rates had swollen to 21.5%, inflation was over 14.5%, and the top marginal tax rate was 70%. One of Carter’s biggest mistakes was to follow the path Obama is suggesting of raising the taxes on businesses and the wealthy to increase tax revenue. Even John F. Kennedy understood this when he said in 1963, “…the soundest way to raise [tax] revenues in the long run is to cut the tax rates.” Kennedy’s tax cuts allowed the economy to roar back to life in 1964. In 1977, the Wall Street Journal addressed Carter’s policies by stating, “…you can’t get rich people to pay more in tax revenues by raising their tax rates.” Instead of raising taxes on the people who already pay the majority of taxes, the government should foster an environment that encourages investment and economic activity through lower taxes on business profits and investment. No Democrat will admit this but during the period after the Bush tax cuts, tax revenues have raised at a rate above the 2003 pre-tax cut levels.

An over-simplified example of how tax policy affects business and investment is to consider two casinos. One casino charges no cover charge and offers free drinks. The other casino charges a $20 cover charge and requires gamblers to pay $2 for every drink. Where would most people gamble? Obviously, gamblers would frequent the casino with no cover charge and free drinks. Businesses are no different in deciding where to invest their money in the most profitable places to expand and operate. Charging higher corporate tax rates only creates another business cost, which is often passed along to customers that must be recovered to generate a profit.

The same idea extends to investments. Higher capital gains and dividend taxes as Obama has proposed, only work to discourage investing through increasing the gains an investor must receive on a market investment to be profitable. Considering over half of American household’s retirements depend on investments such as pension funds, IRA’s, and 401(k)’s, the government would be best advised to promote growing markets. In fact, after Bush’s capital gains tax cut, capital gains tax revenues have more than doubled.

The final myth that Obama uses to justify raising taxes is that the Bush tax cuts destroyed the budget surpluses from 1990 – 2001. The problem with this argument is that spending during this period rose to an historic, unexpected level of 20.2% of GDP by 2006. Obama mentioned during the final debate that the $500 billion surplus was destroyed by the Bush tax cuts. However, he completely dismisses that spending levels increased by an unexpected $514 billion by 2006, enough to cancel any surplus regardless of tax rates.

Every solution from Obama involves a new tax and higher spending. The path out of this economic downturn is through government restraint on both taxes and spending. Obama has never worked to reduce spending in his entire political career. He received a 10% 2007 rating from Citizens Against Government Waste (CAGW) and an 18% lifetime rating. Since 2005, Obama has requested nearly $1 billion in special earmarks, only stopping his requests after starting his bid for the White House. McCain on the other hand, received a 100% rating for 2007 from CAGW, with an 88% lifetime rating. The choice is clear for the path out of the current economic situation. Unfortunately, Obama has no intention of trying to follow it.

Update: Karl Rove wrote a very interesting article explaining how Obama’s tax cuts are not tax cuts at all. Rather they are government welfare payments that will drastically baloon the budget of the current welfare services.



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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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