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June 17, 2010
The Coming Obamanomics Disaster
Barack Obama's tax plan is going to further impoverish Americans. Take a look at this chart from the Wall Street Journal.
In 1981, Reagan enacted tax legislation to lower taxes called the Economic Recovery Tax Act (ERTA). However, the reductions were not applied until 1983. Do you see how stagnant the markets were in 1982, and the jump in gross domestic product in 1983 and the growth in the ensuing years? Some might call those tax cuts a "stimulus" to our economy.
Arthur Laffer of the Wall Street Journal does a wonderful job explaining why Reagan's deferred tax cuts yielded substantial growth. And he goes on to explain why Obama's deferred tax hikes will cause the opposite effect, which will cause "the economy to collapse in 2011." Obama's tax plan includes allowing the Bush tax cuts to expire, meaning a substantial tax hike.
Arthur Laffer's point is really pretty simple. In 1982, businesses expected tax cuts and a more favorable environment for growth in 1983, so they waited until 1983 to grow their business. In 2010, businesses expect tax increases, so they're doing all they can to earn as much as possible before the government starts taking more of what they earn in 2011.
Laffer explains it this way. "If people know that tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible." He suggests this is happening in 2010, evidenced by the fact that "today, corporate profits as a share of GDP are much too high given the state of the US economy."
And with foreign nations offering tax incentives to American businesses for producing on their shores, it doesn't take a genius to predict that money and jobs will be outsourced overseas at an even higher level in the next few years.
But it's not just the evil corporations that these tax hikes will punish. If you believed Obama in 2008 when he said that was going to lower taxes for 95% of Americans, it's obvious now that you've been duped. It's much more than just corporate revenue and the wallets of the damn dirty rich that Obama is after.
We will all be paying more in taxes, not just those greedy bastards that make more than $250K.
Consider a hypothetical scenario for an American family in the immediate wake of the repeal of the Bush tax cuts in January 2011,* in relative figures.
Say you and your wife were promoted in your jobs in 2010, and you have your most successful year, earning $200K combined for 2010. Say you are expecting to make that same amount in 2011 to match a very successful previous year.
Well, you better get ready to start ponying up more cash for being successful.
The 10% income bracket will be eliminated, so the first ~$16K any married couple makes, regardless of income, will be taxed at 15% rather than 10%. Say goodbye to that $800 you were saving for that vacation. That's Obama's money now.
While we're at it, let's say goodbye to the 25% tax bracket that was taxed on dollars up to $141K in 2010. Let's make that 28%, so you'll pay roughly $2K more on those dollars. Where's that money going? To Obama's stash, of course!
How about that last ~$60K you make in 2011? Well, in 2010 it was taxed at 28%. But in 2011, it will be taxed at 31%. Tack on another nearly $2K coming out of your pocket to pay for other people who "want a piece of the pie."
All in all, as a reward for your hard work and success, Obama's going to take an extra roughly $4.5K more from your pockets than he did the year before. And he's going to reward people who don't work at all with healthcare and expanded social programs. Effectively, he's punishing those who work, and paying those who don't.
This Obamanomics stuff is some business model. How can it fail?
And as bad as this is, it is just the result of the repeal of the Bush tax cuts. In reality, it's a drop in the bucket compared to the fiscal burden the middle class will suffer in the coming years. Laffer says in his article, "Tax rates have been and will be raised on income earned from offshore investments. Payroll taxes are already scheduled to rise in 2013, and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle income taxpayers. And there's always the celebrated tax increase on Cadillac healthcare plans. State and local taxes are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere."
Not to mention that this administration is pushing for cap-and-trade taxes and is considering a value added tax (VAT), both of which will be utterly destructive to our economy.
Reaganomics left more money in taxpayers' hands and American businesses thrived. Obamanomics isn't good for American business, and it isn't good for American taxpayers.
So who is it good for?
*Tax estimates based on 2001 tax bracket assuming 3% inflation to create hypothetical 2011 bracket. Estimations devised by Nick Dunckle.
William Sullivan blogs at: politicalpalaverblog.blogspot.com