August 20, 2008

Obama Takes Up Tax Fight in New TV Ad

@ 10:27 am by Chris Good

Barack Obama is fighting back against John McCain's attacks on taxes.

Obama's latest ad, released today, focuses solely on the issue, claiming that Obama's tax plan would do more to lessen middle class taxes than McCain's.

McCain has repeatedly blasted Obama on middle class taxes, accusing Obama of voting to raise taxes on individuals making $42,000. McCain's campaign has cited Obama's vote for a budget resolution that, according to FactCheck.org, would have raised taxes on individuals making as little as $41,500 by allowing President Bush's tax cuts to expire.

Obama's new ad will start airing today in Colorado, Michigan, Missouri, New Hampshire, Ohio, Pennsylvania, Wisconsin, and Virginia, according to the campaign.

Archived under: Campaigns, Economy & Budget, News, Presidential Campaigns
Tags: Barack Obama

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1. Obama Needs to Offer More Than Bread and Circuses

   As ancient Rome rotted from within, her emperors allowed wealth to concentrate in the hands of a few and distracted the general population by handing out bread and providing free entertainment. Eventually the bulk of the population lost interest in protecting a state devoted to the wealthy, and Rome fell. The game of politics has not changed much in the last 2,000 years. Setting aside the current recession, it is clear that the pillars of America’s economic strength have been deteriorating through both Democratic and Republican administrations for 30 years, and that the downward slide is accelerating. Unfortunately even Obama, the Candidate of Change, does not propose to address the underlying problems. Instead, he offers to hand out small checks to the bulk of the population while allowing the wealthy elites to continue to pay extraordinarily low rates of tax. Americans need to reject these petty bribes and to demand real change instead.

   The problem with our economy is very simple, and can be understood in terms of basic supply and demand. Over the last 30 years, the effective supply of employees has increased faster than the demand for their services, so employees lost bargaining power. At first this happened to non-college graduates. Their incomes stopped growing in real dollars 30 years ago as two earner couples increased and unskilled jobs started to move to other countries. The problems at this level grew as it became easier to manufacture in foreign countries and as U.S. immigration policy continued to favor bringing in unskilled minimum wage labor to compete for the jobs that could not be moved abroad. As foreign college graduation rates increased and communications improved, the problem moved upscale. Wages first began to flatten in computer science, math and engineering fields where English skills were not important, and since 2001 salaries have been flat in other sciences, while both U.S. and foreign companies have increasingly placed their research operations abroad.

   Over the last 30 years worker productivity has increased enormously. If the output per worker has increased but wages have not, where has the extra money gone? To the people who own the businesses, of course. Between 1917 and 1973, the average income of persons in the bottom 99% of the U.S. population rose from about $13,000 to about $40,000, adjusted for inflation, but it has stayed flat since then. Between 1917 and 1989 the average income of persons in the top 1% stayed around $300,000, but by 2005 it had risen to over $800,000 and it keeps rising.

   Employees working to make $40,000 pay 15.3% of their income as employment taxes (half of that is hidden because your employer nominally pays it, but economists agree that it really comes out of your pocket). In addition, they pay at least 10% of their taxable income as income tax. A billionaire earning $40,000,000 from stocks pays ZERO employment tax and only 15% income tax on those earnings, if he feels like it (tax on gains is only triggered if you sell, and if you hold on to the assets for life the gain is never taxed). Does that make sense? Obama’s plan would give each family making less than $250,000 up to $1,000 in tax back, and would raise the tax on the billionaire up to 20%. Would that transform your life?

   Let’s get back to supply and demand. Free Trade advocates told us that as low wage, unskilled jobs moved abroad, high skill, high wage jobs would grow in America and we’d all be better off. That didn’t happen because we have a suicidal corporate tax policy. High wage, high profit operations are tax sensitive. If a company makes $100 in the U.S. it pays a 35% tax. If it makes $100 in Singapore or Switzerland it may pay zero tax. So the high profit operations are built in Singapore and Switzerland. Consequently, in 30 years Singapore went from being a poor country to being a rich nation with a broad middle class and Swiss senior secretaries are paid more than U.S. professionals. Supply and demand. Simple stuff.

   What if, instead of a $1,000 bribe, Obama changed the tax policy to allow corporations a deduction for paying out their earnings, and made up the revenue loss by getting rid of benefits for capital gains and dividends and imposing a small incremental tax on income over $500,000 a year, just enough to bring the total federal and state burden on people making that much up to 37.6%? The flow of jobs would reverse. Companies would be looking for U.S. employees. You would have bargaining power. Would that change your life?

   Real change will only happen if you let the politicians know that you will not be fooled by bribes and tricks. Let Mr. Change know that you are looking to the substance behind the show.

   Matt Lykken is a tax attorney and Director of SharedEconomicGrowth.org. More information can be found at http://www.sharedeconomicgrowth.org.
   Biographical information at http://www.sharedeconomicgrowth.org/home/aboutus.html

   Comment by Matt Lykken — August 30, 2008 @ 3:30 pm

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