Wednesday, September 10, 2008

Real Clear Taxes: The Differences

Want a concrete way of understanding the differences between Obama's tax ideas and conservative ideas? Read Tax Cuts, Real and Imaginary.

Newt Gingrich uncovers Obama's dirty little tax secret. His "tax cuts" are really federal spending programs in disguise, since the 'cuts' are for those who don't pay any taxes at all and in fact already get paid in the form of tax credits (that's right, the fed. gov. pays them instead of the reverse, and this is true for 40% of tax payers).

Also, finally, someone is talking again about the need to privatize social security. Think about paying 15% of your income for the rest of your life only to get back what you paid in - with no interest. So after inflation, you've lost money in terms of real spending power. And when you die, the government simply keeps what it owed you. Now imagine paying less into a fund that is actually yours. You'd pay in less and get back much more - because you're money would be growing every year just like it does in 401k's and IRA's. It could be the difference between a family of 4 having 1 million dollars for retirement or getting that poverty-level social security check that ends when you die. We've got to privatize social security. Remember, there is no "Social Security Trust Fund". It doesn't exist. You get Soc. Sec. taxes deducted from your check, and the government simply spends it right now, as normal inflows for their budget.

Gingrich's proposal, at least some of which McCain apparently agrees with is:
- reduce corporate tax rates
- 2/3rds of Americans own stocks; keep the current capital gains tax rate instead of raising it, effectively reducing the value of everyone's stock. Killing the capital gains tax altogether for lower income brackets would be best.
- create personal accounts instead of Social Security. Americans would then retire with real wealth that is theirs.

Regarding taxes:
The bottom 40% pay no taxes, and actually receive money from the government, while the the top 1% pay 40% of the taxes.
That's, 40% get paid, and 1% pay 40% of the tax burden.

The top 1% bracket earns about 20% of national income, but pays 40% of the tax burden.
The top 10% pays 71% of income taxes. I guess that's what "pay their fair share" means.

European corporate tax rates average 24%.
U.S. corporate tax rate is about 50% higher: 35%-40%.
India and China are less than that.


What Obama is calling tax cuts for the middle class is really a slew of refundable federal income tax credits that would primarily go to those who are paying little or no federal income taxes now. Such credits would primarily not reduce tax liability, but instead be checks from the federal government for child care, education, housing, retirement, health care, even outright giveaways. These are not tax cuts. They are new federal spending programs hidden in the tax code.

When Obama says that he will cut taxes for 95 percent of Americans, he is talking about his proposal for a $500 refundable income tax credit for all but the top 5 percent of income earners. For the bottom 40 percent of income earners, this will be just another check from the federal government rather than a reduction in tax liability.

What Obama is proposing here is really quite similar to George McGovern's 1972 plan to send everyone a $1,000 check, which voters rightly saw as a crass vote-buying scheme rather than serious policy.

Obama's plans are the opposite of tax reform. Instead of closing loopholes and lowering rates, he is creating new loopholes and raising rates.

The next big tax cut for these working people would be the ability to utilize personal accounts for Social Security.

Over time, personal accounts could expand to replace the entire payroll tax and finance the same benefits. Instead of paying a tax, working people would be saving and investing in their own personal family wealth engine. With fully expanded accounts, average families could expect to accumulate a million dollars or more, even while paying in about 25 percent less than the current 15.3 percent payroll tax. Such accounts are estimated to pay at least twice what Social Security currently promises and provide the only real hope of addressing the long-term funding problems of Medicare without harming retirees.
More on the ideas of scarce resources and their alternative uses, here at The Pantheon Journal.

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