Obama vs. McCain's taxation plans

[bascule]

This from the Washington Post:

 

 

McCain is calling for across the board tax cuts with an emphasis on decreasing taxes for the rich. Obama wants tax cuts for 99% of Americans and a sharp increase for the richest 1%. I guess it's clear: Democrats like progressive taxation, and Republicans want the tax structure to be flatter.

 

My question: how does McCain plan on addressing the budget deficit, which is presently the worst in history and quickly driving us towards breaking $10,000,000,000,000 in debt?

 

Obama's plan certainly seems fine to me. But I guess I'm just a hippie liberal who doesn't mind a soak-the-rich approach to taxation.

[iNow]

I think McCain plans to veto earmarks or something.

[ecoli]

I'd like to know how Obama is going to pay for all of his nice social programs if he's only increasing taxes on 1% of the population. I'm quite suspicious of this campaign promise.

[iNow]

How much money does that 1% of the population make? (translated: What amount will that tax increase bring into the state?)

[D H]

I'd like to know how Obama is going to pay for all of his nice social programs if he's only increasing taxes on 1% of the population. I'm quite suspicious of this campaign promise.

The top 1% of the population already pays 38.8% of all federal income tax receipts. It certainly is feasible to make them take on an even greater burden. Whether it is fair to do so is a different question, and whether the top 1% of the households would willingly fork over several several hundred thousand dollars each is yet another question.

 

One huge problem with asking any one person to fork over an extra a hundred grand or ten to the government is that it becomes very worthwhile to that person to pay a bevy of creative tax attorneys to ferret out as many loopholes as possible. The rich will focus their energies on escaping taxation (and on bribing Democratic congresscritters) rather than expanding jobs.

[Pangloss]

I completely agree with the implications of the opening post. It's not about overarching philosophical differences OR the gap between the haves and the have-mores. It's about making choices that have the most beneficial impact on the economy, the budget, and the society of debt.

 

Obama's plan makes mounds more sense on all three counts. He's reducing the tax burden on those most impacted by credit card debt (as Bascule points out), which can help us with a very serious problem in that regard. He positively affects far more people while burdening the budget less, and could do so right when we need it to happen most. It's a win-win-win.

 

Thanks for posting it. Bascule, do you have a link to the article at the Post that it came from, by any chance?

[john5746]

My question: how does McCain plan on addressing the budget deficit, which is presently the worst in history and quickly driving us towards breaking $10,000,000,000,000 in debt?

 

Obama's plan certainly seems fine to me. But I guess I'm just a hippie liberal who doesn't mind a soak-the-rich approach to taxation.

 

One huge problem with asking any one person to fork over an extra a hundred grand or ten to the government is that it becomes very worthwhile to that person to pay a bevy of creative tax attorneys to ferret out as many loopholes as possible. The rich will focus their energies on escaping taxation (and on bribing Democratic congresscritters) rather than expanding jobs.

 

I have argued several times on this site that a "fair" tax is a progressive tax, so I also have a gut feel that Obama's tax plan is better. However, the conservative mantra is that lowering taxes is always the way to go. Lowering taxes supposedly grew the economy and therefore grew tax revenue under Reagan and Bush, as predicted by the Laffer curve(right side anyway). The real story is pretty complex and there are good arguments on both sides, however from a practical standpoint, I just don't see the tax rates near the top being detrimental. People will not avoid work, I mean let's face it people in those brackets really don't work more hours for pay anyway - they earn money from investments and leveraging the labor of others. I think DH's point about avoiding taxes is relavent, but I question where the money goes. I think the bulk of tax that is avoided would go towards investments. In the short term, consumption would go down and investments would increase so it might be a drag on the economy, but in the long term I think it would settle out as those in the lower brackets spend their extra bucks and the investments pay off.

 

Obama really needs to improve his message on this issue for upcoming debates. McCain can simply say he is not increasing taxes on anyone and that it will free more money for the economy(trickle down to China via Wal-Mart). Obama has to sell his idea and debunk the mantra that lowering taxes on everyone is always the right thing to do. Clinton raised taxes on the wealthy, the economy grew and we had a surplus. As I said previously, there is much complexity behind both of these statements and it is foolish to think that a single tax policy is the primary factor in the economic trends of a nation, but this is politics and simple > complicated in a debate.

 

McCain really stresses spending cuts, which is popular with most people. It is obvious that he will increase DOD more than Obama, which is difficult to argue in times of war. With a democrat congress, I doubt McCain will be successful with his cuts, so he will go the path of Reagan - lowering taxes and increasing spending in DOD. Obama may actually spend less than McCain, but I doubt he will argue in terms of lowering DOD spending, just in terms of getting out of Iraq and fighting the war on terror in a more efficient way.

[D H]

I have argued several times on this site that a "fair" tax is a progressive tax ...

"Fairness" is not a good metric for at least two reasons:

• What does the term "fair" mean? Any arguments about the fairness of the tax code revolve around unstated assumptions regarding the term "fairness". What liberals think is fair is anything but fair in a conservative's mind, and vice-versa. Flat tax proponents claim "fairness" as one of the virtues of the flat tax. Some extremists even go so far as to argue that the "fairest" tax is a flat fee. Devils advocacy: The rich don't drive any more than do the middle class. Why should they pay any more in taxes?
  
• There is no such thing as a "fair" tax because there is nothing "fair" about taxation. Taxation is legalized armed robbery.

 

Note well: I am not advocating doing away with taxation. Saying that requires a lot more than a mere tin foil hat. Only those who wear full-body tin foil armor can make such a claim. I am merely advocating throwing out the idea of 'fairness'. I suggest a metric of minimizing unfairness in its stead, and in particular spread the pain-of-suffering as evenly as possible.

 

For example, consider the case of a hypothetical 25% across-the-board flat tax. A poor person who makes $10,000 per year has to pay $2,500 in taxes, while the person who makes one million per year has to pay $250,000. The pain felt by the typical $10,000 per year wage earner as a result of paying $2,500 in taxes is a whole lot more than the pain felt by the typical million dollar per year wage earner as a result of paying $250,000 in taxes. The across-the-board flat tax does a terrible job of spreading the pain-of-suffering. Some level of progressivity is needed to spread the pain-of-suffering as evenly as possible.

 

Another advantage of this metric is that it dissociates the issue of who pays how much from the issue of how the tax monies are spent. This is not the case when the "fairness" metric is used. Collecting the lion's share of the federal tax receipts from one group (the wealthy) and giving that money to others (the poor) is anything but fair.

[Mr Skeptic]

Maybe it would be better if the tax rate were based on how much people earn per hour of work, rather than total earnings. It would be harder to measure, but it would not punish people for working more.

[john5746]

DH,

 

Yes, I placed "fair" in quotations because of the fair tax pushed around by some conservatives and some liberals seeming to place fairness over what will work for the well-being of the country.

 

I think a progressive tax is justified by the fact that a person's wealth is in a large part determined by the state of society. It is much harder for a billionaire to have his standard of living on an island by himself than it is for a minimum wage earner.

 

From this example, I think it is clear that the billionaire has a much larger share of society benefit(government spending) than the other person. Without the government, he would have to spend much more of his resources on security, infrastructure etc to retain wealth. So, he owes a greater proportion of his wealth to society.

 

The ability to pay is secondary, but important. If the lower classes are taxed to the point of starvation, they will revolt and society crumbles. If the upper tier are taxed to the point of middle class, then they will revolt and everyone becomes poor.

[ParanoiA]

For example, consider the case of a hypothetical 25% across-the-board flat tax. A poor person who makes $10,000 per year has to pay $2,500 in taxes, while the person who makes one million per year has to pay $250,000. The pain felt by the typical $10,000 per year wage earner as a result of paying $2,500 in taxes is a whole lot more than the pain felt by the typical million dollar per year wage earner as a result of paying $250,000 in taxes. The across-the-board flat tax does a terrible job of spreading the pain-of-suffering. Some level of progressivity is needed to spread the pain-of-suffering as evenly as possible.

 

And that's where I have a problem with subjective notions about taxation. I'd rather go with an objective metric that relies on a principle of structure: equally invested republic.

 

You wouldn't go into a business providing 90% of the funding but only half the say. It would be conflicting to give the other guy paying only 10% of the funding an equal say. They have much less to lose than you. That's ridiculous. And yet, with taxation, we do just that.

 

If we allow disproportion of responsibility based on subjective ideas of "fairness" or "equal pain" then we set up a conflict of interest.

 

Who wouldn't vote to raise taxes on the other guy? Most poor people, anecdotally speaking, are all for the rich covering the burden of taxes. This is akin to that guy only investing 10% voting to shift another 3% to the guy already paying 90%.

 

Equal say, equal vote for an unequal investment equals inequality. (Hehe, say that three times fast)

 

Anyway, that's my two cents.

Edited July 31, 2008 by ParanoiA
can't seem to spell equally with the right number of L's.

[Sisyphus]

But since when is there an objective metric of fairness? You say paying the same amount is fair, but most people disagree with you. "Giving the same" is all well and good, but the same what? The same quantity? The same percentage? The same imposition? Or going even further, is not any tax code implemented in a democracy fair by definition? We voted on it! Alternatively, as DH says, there are those who say that any taxation is objectively, inherently unfair.

 

Furthermore, in reality "fairness," however you're going to define it, is still only one of several factors weighing against one another. Simple possibility has to be considered. You can't just charge a universal "citizenship fee," because it would have to be more than a lot of people have all together. Even if it could be managed, pragmatically it's still a stupid idea. Taxing most of the money from the poor would just make them extremely poor, and crash the economy. You'd end up with feudalism. So right off the bat, "what's best for the economy" (however THAT is defined) is a serious factor to weigh against "what is most fair." And all that is still assuming a constant target revenue! Should it be? How bad are deficits? What about surpluses? Not to mention political considerations. You could have a perfect theoretical balance of everything else, but it's worthless if you can't get it through Congress...

[swansont]

Anyone have numbers to compare how the taxes would be in these plans compared to how they were when Bush took office?

 

 

And here's something related to chew on — debunking the myth that republicans are better for the economy than democrats

http://petercohan.blogspot.com/2006/11/democrats-better-for-economy.html

http://www.washingtonmonthly.com/archives/individual/2005_05/006282.php

http://www.huffingtonpost.com/hale-stewart/proof-democrats-are-bette_b_113238.html

[ParanoiA]

But since when is there an objective metric of fairness? You say paying the same amount is fair, but most people disagree with you. "Giving the same" is all well and good, but the same what? The same quantity? The same percentage? The same imposition? Or going even further, is not any tax code implemented in a democracy fair by definition? We voted on it! Alternatively, as DH says, there are those who say that any taxation is objectively, inherently unfair.

 

I'm not sure if you're responding to me or not because I did not propose an objective metric to "fairness". I threw "fairness" out the proverbial window.

 

I'm more concerned with the structure of power. It only seems obvious that if we are all going to enjoy 1 man = 1 vote, then all men must be equally invested. All men must stand to lose the same. My argument is about disproportion, not fairness.

 

I have percentages in mind. I realize D H's argument on how 10% effects a millionaire differently than the impoverished. I say it's irrelevent how much one "hurts" or "doesn't hurt". It's more important to check the conflict of interest. It ends the class warefare the two parties use to abuse us and keep us in contention with one another, when it's a constitutional principle to require an equally invested citizenry; when you can't load all the tax burden on another.

 

I'm surprised we haven't totally taken over the rich. There's nothing stopping everyone from just taking a look around and realizing that "Hey, how about ALL of us make THAT guy pay for everything? There's lots of us, and only one of him so let's stick it to him!"

 

That's a blatant conflict, in my opinion. How can you trust your fellow citizen when it's entirely in their interest to tilt the burden of funding on you? It's a conflict that I have never seen in the business world. I don't know anyone that would invest 10 times as much into something as someone else, even receiving 10 times the profit in return, and consent to the same level of power, or vote as that person.

 

This is something I've chewed on for awhile, never really posted it. Obviously there's consequences, but there's also benefits and admittedly I'm not sure what all of them are - in either category.

[ecoli]

I'm surprised we haven't totally taken over the rich. There's nothing stopping everyone from just taking a look around and realizing that "Hey, how about ALL of us make THAT guy pay for everything? There's lots of us, and only one of him so let's stick it to him!

Perhaps there is something to be gained from the lobbyists after all.

[bascule]

Lowering taxes supposedly grew the economy and therefore grew tax revenue under Reagan and Bush, as predicted by the Laffer curve(right side anyway).

 

Yeah, the Laffer curve. I think the Neo-Laffer curve is a more accurate depiction:

 

Edited August 1, 2008 by bascule

[Sisyphus]

ParanoiA:

 

I was responding to you, yes. You seemed to be implying that your proposal was the "fair" one, and objectively so, to boot. "Equal say, equal vote for an unequal investment equals inequality," you said. That seems like an argument based on a sense of fairness. Not that that's an invalid opinion, mind you. We have to consider what's fair, even if we don't agree on what IS fair.

[iNow]

Anyone have numbers to compare how the taxes would be in these plans compared to how they were when Bush took office?

 

For the numbers to compare the differences in the present candidates approaches, here's a wonderful .pdf with loads of very clear and readable tables:

 

http://www.taxpolicycenter.org/UploadedPDF/411693_CandidateTaxPlans.pdf

 

 

The site from which I pulled that .pdf has the following page with historical features of individual minimum taxes:

 

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=195

 

 

That may not be precisely what you need to compare the tax status before Bush, but I imagine said data is available somewhere on their site (which is hugely robust and expansive).

[ParanoiA]

ParanoiA:

 

I was responding to you, yes. You seemed to be implying that your proposal was the "fair" one, and objectively so, to boot. "Equal say, equal vote for an unequal investment equals inequality," you said. That seems like an argument based on a sense of fairness. Not that that's an invalid opinion, mind you. We have to consider what's fair, even if we don't agree on what IS fair.

 

Well, I can see where my argument can mimic fairness, but it's more about a check and balance routine to neutralize the conflict of interest to the respect of the republic.

 

Where there is property to be gained there is opportunity to be exercised; without individual monetary gain the duty to the republic is more honest. And that sure seems like a crucial principle for a republic to consider.

[Pangloss]

Just as an aside, it's interesting to note that Obama doesn't plan to let the Bush tax cuts expire any more than McCain does. Both of the plan to do the same thing, in fact: Extend the tax cut except for earners over $250,000 per year. (source)

 

I don't think anybody's mentioned the BTCs in this thread, I just happened to run across that today and thought it was interesting.

[bascule]

Just as an aside, it's interesting to note that Obama doesn't plan to let the Bush tax cuts expire any more than McCain does. Both of the plan to do the same thing, in fact: Extend the tax cut except for earners over $250,000 per year. (source)

 

I don't think anybody's mentioned the BTCs in this thread, I just happened to run across that today and thought it was interesting.

 

I found this amusing:

 

McCain (April 20): Sen. Obama says that he doesn’t want to raise taxes on anybody over – making over $200,000 a year, yet he wants to nearly double the capital gains tax. Nearly double it, which 100 million Americans have investments in – mutual funds, 401(k)s – policemen, firemen, nurses. He wants to increase their taxes. And he [Obama] obviously doesn’t understand the economy, because history shows every time you have cut capital gains taxes, revenues have increased, going back to Jack Kennedy.

 

Obama doesn't understand the economy? What about the giant blunder of clearly implying that 401(k) funds are subject to capital gains taxes? That's simply not the case: Those retirement funds are taxed as income when they are drawn down.

 

McCain sure likes to point out that Obama doesn't know about thing X while demonstrating ignorance about thing X, doesn't he?

[ecoli]

McCain sure likes to point out that Obama doesn't know about thing X while demonstrating ignorance about thing X, doesn't he?

Neither candidate has much experience in economics... ironic because voters consider it the #1 issue this year.

 

I really wish Ron Paul had gone farther.

[ParanoiA]

Neither candidate has much experience in economics... ironic because voters consider it the #1 issue this year.

 

I really wish Ron Paul had gone farther.

 

Also ironic since Paul is an economist - the economic expert of the lot.

[ecoli]

Also ironic since Paul is an economist - the economic expert of the lot.

That's what I mean. I remember in one debate McCain's answered a question about the economy by saying he had Jack Kemp as part of his team. But, he isn't out there talking about what caused these problems or how to fix them (like how inflation is devaluing the dollar and how we're fixing our bad credit problems by issuing credit to creditors).

 

Paul brought these issues out (at least to the internet, even if he didn't get into the mainstream media all that often) and I guess the Libertarians are talking about them too (to a lesser extent).

 

As a supposed economic conservative, McCain has a great oppurtunity to challenge Obama on his domestic spending plans, but I just don't think he has the economy know-how to address these issues.

[swansont]

Just as an aside, it's interesting to note that Obama doesn't plan to let the Bush tax cuts expire any more than McCain does. Both of the plan to do the same thing, in fact: Extend the tax cut except for earners over $250,000 per year. (source)

 

I don't think anybody's mentioned the BTCs in this thread, I just happened to run across that today and thought it was interesting.

 

 

I did, and both yours and iNow's links imply that Obama's plan lets those cuts expire for the top earners but McCain's does not. IOW, if either candidate did nothing, the taxes would go up. So attributing the increases to anyone but Bush is weak.

 

 

Here's a question: anyone know of a study that tracks how a dollar spent by a consumer stimulates the economy, vs a dollar spent by the government?