Friday, August 29, 2008

The Nightmare

Ok, here's the scene. It's President Obama's 13th month in office. His advisors are sitting around him in the Oval Office.

"I want to create new jobs for the lower and middle class. Why are the large companies firing people and not hiring them?"

"Because, Mr. President, you took away all the big companies' tax breaks and their net profits are way down. They can't afford to hire people into new positions. They actually have to lay people off."

"What! Well tell them they can't do that! They are going to have to settle for lower profits this year and start hiring people again."

"But Mr. President, these large companies have boards to answer to. They can't make those decisions in an economic vacuum. If their profits go down or disappear, their stocks will plummet even further."

"Oh. Uh. Okay. Why is that bad? They are big companies. They can take it."

"Because that would affect the stock market and overall American economy. Not to mention all their longtime shareholders."

"Forget those wealthy shareholders!"

"Well, a lot of shareholders are holding these companies' stocks in their pension and retirement funds. I wouldn't exactly call them wealthy, Mr. President. "

"Let's move on. I need to figure out how to keep my promise to the American People about universal health care. Why hasn't that happened yet?"

"Well, because so many people are unemployed, fewer people are paying taxes and revenues are way down. The government simply doesn't have the money to fund Universal Healthcare."

"Well, let's raise income taxes on the wealthy then! Let the Warren Buffets of the world pay for the poor's healthcare!"

"See, the obscenely wealthy people in the country like Warren Buffet aren't really all that affected by tax cuts and increases. The bulk of their wealth doesn't really come from working income. And the upper-middle-class people who were trying to get rich by working harder before you took office aren't nearly as motivated, since 2 out of every 5 weekdays' earnings now goes to the government instead of their bank accounts. And since nearly 60% of all income tax comes from these people, well, tax revenues are way down. We simply don't have enough money to run all those lovely programs you promised the American people."
Etc. Ok, I'll admit, it's highly oversimplified and a lot of other factors come into play, but the principles still hold true. My fellow Americans, if Obama is elected, we are not looking at four more years of George Bush. We are looking at four more years of Jimmy Carter, God help us. I think Obama is sincere, but he doesn't get it and he doesn't have the experience. And with only about 25 years to go to my retirement, I don't want my future to be his guinea pig.


abandoning eden said...

ok I don't know what your definition of "upper middle class" is, but Obama's tax plans would raise the taxes of people making 200k a year by only $12 a year (that's twelve dollars), and would not start to have significant impacts until people made $600,000 a year. Where I come from, $600k a year isn't "upper middle class" it's "freakin rich".

abandoning eden said...

Ok, I don't know what your definition of "upper middle class" is, but obama's tax increases would increase the taxes of someone earning $200k per year by $12 a year (twelve dollars) and would not be a major increase until you earned $600k a year. Maybe where you come from $600k a year is "upper middle class" but where I'm from, that's "freakin rich"

But then again, maybe my views are skewed. Me and my fiance live off of about $40k a year total, and I would call us middle class. But maybe we are actually dirt poor, and just don't know it.

WebGirl said...

How do figure $12? Where did you pull that number from? And where did you get that $600,000 number from?

Obama is proposing:
-a 20% tax on dividends and capital gains, for those who earn more than $250,000 per year.

-additional social security taxes of between 2 and 4 percent of their wages, for those who earn more than $250,000 per year. (2% of $250,000 is $5,000, 4% is $10,000).

-a return of the 36% and 39.6% tax brackets, an increase over the current top rate of 35%.

Obama is also proposing rolling back the Bush tax cuts, which means going back to a "marriage penalty" to upper-middle class (two individuals who earn just under $200,000 who get married will be hit with a giant tax increase).

Also, this is sort of parenthetical, but under Obama, the estate tax would be repealed for nearly all estates at a 45% rate for estates valued at over $7 million per couple.

So $7 million sounds like an enormous amount of money, right? But think about it...if you inherit a small business from your family, like say a store that is holding a large inventory, you will have no choice but to sell off the business in order to pay taxes on it, because the taxes will be equal to nearly half the value of the business, and most people don't have that kinda cash sitting around in their pockets. SO much for promoting small business. Also, the estate tax is grossly unfair, because it basically taxes money that has already been taxed.

But that's besides the point. Getting back to that $12....what is your source for that and for the $600,000?

Isophorone said...

I think the $12 in additional taxes starts with those single filers making $41,000 per year and only goes up from there.

One other thing you forgot to add to the burden: Obama would sign into law "card check" forced unionization which would take away another few percent of workers' incomes to go to greedy labor unions. He would also try to pass laws to override State "right to work" provisions. These can only put more drag on the economy.

WebGirl said...

For some reason, AE, your second comment just came in. It looks like you just weren't sure if your first comment came in or not so you reposted.

You are your fiance are still students, correct? I've been there. You're also graduate students, which means you're straddling the world between being a student and working. I'm guessing you don't pay any or pay very little taxes right now, because of where you are in life. You might lead a middle class lifestyle, but $40,000 is really very, very little for two people to live on in 2008.

But wait until you are both out of school and working. Wait five or ten years until you are each making $65,000 or $70,000 and $30,000 of that has to go back into the government's pocket and you can't buy a decent home or a second car because your take-home is so little of what you earn. You might feel differently about what qualifies as rich.

abandoning eden said...

I heard the twelve dollar thing on CNN yesterday or the day's a picture from the washington post that illustrates it:
according to this, until I make over 600k a year, my taxes would be going down.

yeah i wasn't sure if that first comment posted, and I wasn't finished writing, which is why is showed up twice. :)

I'm a student, but B is not- he graduated almost a year ago, and has a job. And while I'm a "Student" in that I'm enrolled in school, I don't take classes, and I get paid to do research and teach courses. I actually make around $30k a year- and around $3k of that goes to taxes. B has been unable to find a full time job since he graduated (thanks bush economy!) and earns around $15k a year at his part time job.

Honestly, I don't think both of us are ever going to be making 70k a year(or $140k total), since I'm going to be a professor and B want to be a stay at home dad when we have kids. And professors don't ever make more than around $100k a year, unless they are teaching at an ivy league school (and I don't intend on teaching at one). But since we don't plan on living in the NYC area, and we don't need a second car, I think we will be fine. As it is, on my $30k a year salary, I still save like $500-$1000 a month. :) Which is why I totally have enough saved right now to put a nice big fat downpayment on a house. And how much do mortgages cost? Right now we are paying $1100 a month in rent...can it be a lot more than that? Once I have a job and am earning twice as much as I am now, we could probably afford to pay 3x that amount in a monthly mortgage. We just don't have a very fancy standard of living, and don't ever intend to.

Apart from that, no matter what Mccain says, taxes are going to have to go up for somebody. We have a several trillion dollar deficit in this country, and cutting taxes is not going to solve that. If that means personal sacrifice on my part, that's just the reality of the situation. And I would much rather pay much more money in taxes than keep having to hear B wheeze while he sleeps, since he has asthma, has no health insurance, and can't afford the $300/month that his inhaler costs without insurance.

WebGirl said...

AE, you've got about 85 different things going on in your comment. One at a time.

First of all, regarding that diagram...the Wash Post isn't exactly a non-partisan news source. I mean, I could probably dig up dozens of diagrams from Conservative, pro-McCain websites that slice things another way. Let's just look to what Obama actually said. The cuts and breaks that I quoted were just the facts from the Obama press release on his tax plan. The way you or I analyze them is something else.

If I make $110,000 a year (I do) and I marry a man who makes $150,000 (very possible, assuming I ever get married, but that's another post entirely), we are facing anywhere between a 2-4% increase in our taxes, or $5,000-$10,000. Those are the numbers. That's not $12. Maybe there is some scenario where that number becomes $12. Not sure what that scenario is. Do you know?

As far as your personal situation, you are currently paying around 10% in taxes or $3,000. That's nice. Part of the reason you can pay 10% is because higher wage earners (like me) pay more than 30%. My total tax bill last year was higher than your entire gross salary. The amount I gave in charity was more than your total tax bill (and I could give that much because I had so much more income). I'm not trying to be obnoxious, just to point something out. Talking about "personal sacrifice on my part" well, let's just say I think you are a little too young and too new to the work force to say something like that right now, especially when you are actually contributing so little and others are paying so much more, both proportionally and in actual dollars. Don't hate me for pointing that out.

As far as your expenses, if your rent is $1,100, that means over $13,000 of your salary is going to rent. If you save an average of $750 (I picked a number between $500 and $1000) a month, that means you save about $9,000/yr. So if you take home $27,000, you actually live off of $5,000/year, after rent and savings? You sure? That is very, very little.

And this is none of my business, but if you buy a $250,000 house, as first time buyers who probably have no credit record, you will probably have to put down 25% or $62,500. How long will it take for you to save that?

I don't know if President Bush's policies are responsible for your fiance's unemployment. Maybe they are, maybe they aren't. I don't know what your fiance does. Personally, my field has opened way up in the last year, and I don't know if President Bush is responsible for that either. And why is your fiance only working part time? When I first graduated from school (college, I didn't go to grad school) my first job didn't pay enough so I waited tables at night and tutored on weekends. It seems odd that he would only be working part-time, especially if the two of you are so tightly budgeted.

I know that is absolutely none of my business, btw. Just my nosy $.02.

As far as the inhaler, you are a self-described near-socialist, so why don't you turn to the government? If you and B. are not married yet, and your fiance makes only $15,000/yr., why can't he get an inhaler from a free clinic or from Medicaid? Or get hooked into a program like this: And I'm sure you have health insurance from school...why don't you get legally married immediately (you can still have the official wedding when you planned it) and get him on your health insurance? Or, turn to private a gemach in NYC and see if they can help you (I can hook you up if you like). There are so many ways to go with this...I'm sure you have researched it though. But why should he suffer like that?

Finally, on taxes. You said: "Apart from that, no matter what Mccain says, taxes are going to have to go up for somebody. We have a several trillion dollar deficit in this country, and cutting taxes is not going to solve that." Although this might not feel intuitive, it is absolutely true: When tax rates go down, tax revenue goes up. Our government was taking in much, much more in absolute dollars in 1988 than in 1980 (post-Reagan tax cuts) and more in 2008 than in 2000 (post-Bush tax cuts). The deficit problem is with the spending. And by the way, as much of a Republican as I now am, I'll be the first to admit that President Bush spends like a drunken sailor. That's gotta stop. As far as the revenue increasing when you lower taxes, the phenomenon is simple: if you allow people to proportionally keep more of what they earn, you are empowering, enabling and motivating them to take care of their own needs (as opposed to turning to gov't programs), work harder and earn more. Earn more, tax revenues increase, and economy grows. Any growth in the economy (and therefore proportional growth in taxes, in fact more than proportional, since it's a progressive tax) offsets cuts in marginal rates. Also, since markets allocate resources more efficiently than government, less government revenue as a percentage of GDP means more capital is efficiently allocated, which means even more growth. Makes sense? Capitalism and small government. This is not my theory. The numbers prove it. Historically, when tax rates have gone down, tax revenues have always gone up.