I am more concerned about the definition of the word "fair" when applied
to the concept of taxation by those who want to take more in taxes from
people who make more money. Since "fair" changes with a change in
income, I would like to see those who use that word define it, ideally
in a table of income v. tax by % and total amount, kinda like what the
1040 instruction book has in it.
It's a real simple question, but no proponent of "fair" share taxation
has been able to tell me what they mean by that word.
In some ways, I'm a simple-minded kind of guy, so simple answers help me
understand things better. Like, "I make X, how much is 'fair' for me to
pay in taxes?"
And then, "So, how did you come up with that number?" [Answer probably
takes a bit more explanation]
So, to Andrew -- if I made $150k per year how much would my "fair" tax
be? $50k, 75k, 100k, 200k, 250k just to round it out a bit.
--R
Obamanomics Is a Recipe for Recession
By *MICHAEL J. BOSKIN*
July 29, 2008; Page A17
[nowides]
What if I told you that a prominent global political figure in recent
months has proposed: abrogating key features of his government's
contracts with energy companies; unilaterally renegotiating his
country's international economic treaties; dramatically raising marginal
tax rates on the "rich" to levels not seen in his country in three
decades (which would make them among the highest in the world); and
changing his country's social insurance system into explicit welfare by
severing the link between taxes and benefits?
The first name that came to mind would probably not be Barack Obama,
possibly our nation's next president. Yet despite his obvious general
intelligence, and uplifting and motivational eloquence, Sen. Obama
reveals this startling economic illiteracy in his policy proposals and
economic pronouncements. From the property rights and rule of (contract)
law foundations of a successful market economy to the specifics of tax,
spending, energy, regulatory and trade policy, if the proposals espoused
by candidate Obama ever became law, the American economy would suffer a
serious setback.
To be sure, Mr. Obama has been clouding these positions as he heads into
the general election and, once elected, presidents sometimes see the
world differently than when they are running. Some cite Bill Clinton's
move to the economic policy center following his Hillary health-care and
1994 Congressional election debacles as a possible Obama model. But
candidate Obama starts much further left on spending, taxes, trade and
regulation than candidate Clinton. A move as large as Mr. Clinton's
toward the center would still leave Mr. Obama on the economic left.
Also, by 1995 the country had a Republican Congress to limit President
Clinton's big government agenda, whereas most political pundits predict
strengthened Democratic majorities in both Houses in 2009. Because newly
elected presidents usually try to implement the policies they campaigned
on, Mr. Obama's proposals are worth exploring in some depth. I'll
discuss taxes and trade, although the story on his other proposals is
similar.
First, taxes. The table nearby demonstrates what could happen to
marginal tax rates in an Obama administration. Mr. Obama would raise the
top marginal rates on earnings, dividends and capital gains passed in
2001 and 2003, and phase out itemized deductions for high income
taxpayers. He would uncap Social Security taxes, which currently are
levied on the first $102,000 of earnings. The result is a remarkable
reduction in work incentives for our most economically productive citizens.
/(Continued below.)/
[Boskin]
The top 35% marginal income tax rate rises to 39.6%; adding the state
income tax, the Medicare tax, the effect of the deduction phase-out and
Mr. Obama's new Social Security tax (of up to 12.4%) increases the total
combined marginal tax rate on additional labor earnings (or small
business income) from 44.6% to a whopping 62.8%. People respond to what
they get to keep after tax, which the Obama plan reduces from 55.4 cents
on the dollar to 37.2 cents -- a reduction of one-third in the after-tax
wage!
Despite the rhetoric, that's not just on "rich" individuals. It's also
on a lot of small businesses and two-earner middle-aged middle-class
couples in their peak earnings years in high cost-of-living areas. (His
large increase in energy taxes, not documented here, would
disproportionately harm low-income Americans. And, while he says he will
not raise taxes on the middle class, he'll need many more tax hikes to
pay for his big increase in spending.)
On dividends the story is about as bad, with rates rising from 50.4% to
65.6%, and after-tax returns falling over 30%. Even a small response of
work and investment to these lower returns means such tax rates, sooner
or later, would seriously damage the economy.
On economic policy, the president proposes and Congress disposes, so
presidents often wind up getting the favorite policy of powerful
senators or congressmen. Thus, while Mr. Obama also proposes an
alternative minimum tax (AMT) patch, he could instead wind up with the
permanent abolition plan for the AMT proposed by the Ways and Means
Committee Chairman Charlie Rangel (D., N.Y.) -- a 4.6% additional hike
in the marginal rate with /no/ deductibility of state income taxes.
Marginal tax rates would then approach 70%, levels not seen since the
1970s and among the highest in the world. The after-tax return to work
-- the take-home wage for more time or effort -- would be cut by more
than 40%.
Now trade. In the primaries, Sen. Obama was famously protectionist,
claiming he would rip up and renegotiate the North American Free Trade
Agreement (Nafta). Since its passage (for which former President Bill
Clinton ran a brave anchor leg, given opposition to trade liberalization
in his party), Nafta has risen to almost mythological proportions as a
metaphor for the alleged harm done by trade, globalization and the pace
of technological change.
Yet since Nafta was passed (relative to the comparable period before
passage), U.S. manufacturing output grew more rapidly and reached an
all-time high last year; the average unemployment rate declined as
employment grew 24%; real hourly compensation in the business sector
grew twice as fast as before; agricultural exports destined for Canada
and Mexico have grown substantially and trade among the three nations
has tripled; Mexican wages have risen each year since the peso crisis of
1994; and the two binational Nafta environmental institutions have
provided nearly $1 billion for 135 environmental infrastructure projects
along the U.S.-Mexico border.
In short, it would be hard, on balance, for any objective person to
argue that Nafta has injured the U.S. economy, reduced U.S. wages,
destroyed American manufacturing, harmed our agriculture, damaged
Mexican labor, failed to expand trade, or worsened the border
environment. But perhaps I am not objective, since Nafta originated in
meetings James Baker and I had early in the Bush 41 administration with
Pepe Cordoba, chief of staff to Mexico's President Carlos Salinas.
Mr. Obama has also opposed other important free-trade agreements,
including those with Colombia, South Korea and Central America. He has
spoken eloquently about America's responsibility to help alleviate
global poverty -- even to the point of saying it would help defeat
terrorism -- but he has yet to endorse, let alone forcefully advocate,
the single most potent policy for doing so: a successful completion of
the Doha round of global trade liberalization. Worse yet, he wants to
put restrictions into trade treaties that would damage the ability of
poor countries to compete. And he seems to see no inconsistency in his
desire to improve America's standing in the eyes of the rest of the
world and turning his back on more than six decades of bipartisan
American presidential leadership on global trade expansion. When trade
rules are not being improved, nontariff barriers develop to offset the
liberalization from the current rules. So no trade liberalization means
creeping protectionism.
History teaches us that high taxes and protectionism are not conducive
to a thriving economy, the extreme case being the higher taxes and
tariffs that deepened the Great Depression. While such a policy mix
would be a real change, as philosophers remind us, change is not always
progress.
**Mr. Boskin, professor of economics at Stanford University and senior
fellow at the Hoover Institution, was chairman of the Council of
Economic Advisers under President George H.W. Bush.**
**
Obamanomics Clarified
By *MICHAEL J. BOSKIN*
August 4, 2008; Page A13
[nowides]
In my July 29 op-ed ("Obamanomics Is a Recipe for Recession
<http://online.wsj.com/article/SB121728762442091427.html?mod=Commentary-US>^1
"), I was among the many who took Barack Obama's statements that he
would "end the Bush tax cuts for the top incomes" too literally. I
interpreted this to mean a return to the pre-Bush tax rates of 39.6% on
ordinary income and 20% on capital gains.
The Obama campaign has now clarified that he proposes to do this for
labor earnings, but not for capital gains and dividends. I am told that
Mr. Obama declared last year that he would raise these rates to "no more
than the Reagan rate," by which he apparently means to 28%, from the
current 15%. Mr. Obama would thus raise the tax rate on capital gains by
about three times as much as President Bush cut it, but he'd preserve at
least some of the Bush reduction in the double-taxation of dividends.
/(Continued below.)/
[Boskin]
The 28% rate on capital gains was the price President Ronald Reagan paid
to pass the 1986 Tax Reform Act that lowered the top marginal tax rate
on ordinary income (including dividends) to 28%. The capital gains rate
was cut to 20% in 1997 under President Bill Clinton, and again to 15% in
2003.
However, Mr. Obama is proposing to raise the top marginal rate on wages
(also interest, rent and royalties, etc.) more than 40% above the
corresponding Reagan rate of 28%. Mr. Obama would thus give us the worst
of both worlds: tax rates on ordinary income 40% higher than Reagan and
on capital gains 40% higher than Clinton.
Raising the rate on capital gains to 28% would greatly reduce the
ability of firms to minimize double taxation by returning cash to their
shareholders through repurchases. As for dividends, the Obama plan would
nearly double the tax to 28% from 15%.
I have revised the table that accompanied my op-ed showing the negative
effects on the after-tax returns on investments to reflect the
clarification. It is also available at http://www.stanford.edu/~boskin/
<http://www.stanford.edu/%7Eboskin/>^2 . Please use the new table for
reference purposes.
I'm glad to hear that Mr. Obama is willing to retain at least a portion
of the Bush tax cuts on dividends. But nearly doubling the tax rates on
capital gains and dividends to 28% is a terrible idea that would damage
fragile financial markets and the economy.
**Mr. Boskin is a professor of economics at Stanford University and a
senior fellow at the Hoover Institution; he was chairman of the
President's Council of Economic Advisers in the George H.W. Bush White
House. (The Journal has frequently invited the Obama campaign to explain
its tax plans in our pages, and we gladly repeat the invitation publicly
here today.)**
Bill R wrote:
> Rich - Watch your language there. "Fair Tax" is pretty exactly defined in a
> book of the same name. To eliminate ALL other taxes and go with a sales tax
> to the final consumer only [no tax on business to business sales or used
> items] the estimate is somewhere in the low 20's% [don't recall exactly].
> No income tax, no inheritance tax, no taxes on anything except sales to
> final consumer.
> BillR
>
>
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