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Breakage · 09-04-2008, 12:15 AM

BY DAVID HOGBERG

INVESTOR'S BUSINESS DAILY

Posted 8/22/2008

With the U.S. suffering from low GDP growth, job losses, a credit crunch and weak housing activity, Barack Obama's tax plan would help or hurt, depending on which economist you ask.

Obama would boost the tax burden over current policy, shift the tax burden to higher earners, and result in higher marginal rates for the top earners and for some in the middle class.

His plan would raise taxes by $627 billion over 10 years, based on likely assumptions, according to an analysis by the Tax Policy Center, a joint project of the liberal Urban Institute and the Brookings Institution. Alan Viard, resident scholar at the conservative American Enterprise Institute, claims the Obama plan would jar growth.

"The higher marginal rates at the top would, all else equal, tend to reduce economic growth by impeding work and capital accumulation," he said.

Michael Ettlinger, vice president of economic policy at the liberal Center for American Progress, disagrees.

"I think it's a good plan. It balances needed investments in energy and education with the need to be fiscally responsible," he said.

The Obama plan would raise the top two marginal rates of 33% and 35% to 36% and 39% and hike the capital gains rate from 15% to 20%.

The effective top marginal rate of 38% for top earners could rise to 48% to 50%,including a new Social Security payroll tax on wage income above $250,000.

While Viard notes that Obama's tax increases wouldn't be as large as previously thought, they would still do "harm to long-run growth from reduced incentives," he said.

Bob Williams, an economist with the Urban Institute, sees a milder effect.

"Increasing the top rates may change how the people at the top realize income," he said. "But it is unlikely to affect how much income they earn."

On the lower end of the income scale, Obama's plan would expand the earned income tax credit and the payroll tax, plus help out with child care and retirement savings.

It also would scrap income taxes on the elderly making less than $50,000 annually.

"That puts money in the hands of those most likely to spend it," said Williams.

"The tax cuts are well targeted to boost demand," Ettlinger concurred. "The credit reducing the payroll tax for lower income workers is exactly what our economy needs."

The Obama plan would cut taxes for many middle class earners. The ones left out would find tax credits phase out as income increases. "Many middle-income households will face somewhat higher effective marginal tax rates due to the phase-outs," said Viard.

Under the Obama plan, a family of four with an income of $31,000 to $45,000 could end up with a marginal tax rate 34% to 39%, 13 percentage points higher than under the current tax code.

Even with lower overall tax takes, higher marginal rates could reduce the incentive to work or improve skills to seek higher-paying jobs.

Much of the impact of the Obama plan may hinge on how it treats the federal budget deficit, which this year is projected to swell to more than $400 billion.

"It depends on how Obama pays for his tax cut," said Robert McIntyre, director of Citizens for Tax Justice. "If there is no long-term borrowing, it will not have a long-term drag on the economy."

The Tax Policy Center analysis shows that the Obama plan would reduce the deficit by $800 billion over 10 years — assuming Obama would not cut or increase spending. But Obama has promised to boost spending by at least $126 billion annually, with increases in education, medical insurance, the environment and foreign aid.

He has also promised to cut spending by an undetermined amount by ending the Iraq War, reducing subsidies to Medicare HMOs and farmers, and improving health insurance efficiency.

Ettlinger worries that reducing the deficit could hamper government spending in energy infrastructure and education.

"If the Obama plan were to solely focus on deficit reduction, it would harm the economy," he said

Economists also are divided over the short-term pros and cons of Obama's plan, given the economy's current weakness.

"It is just what the economy needs since our current troubles are likely to move into next year," Ettlinger said.

Regarding the increases in the top rates, Williams said: "Raising rates in times of an economic downturn is a bad idea. Timing is important with this plan."

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some people get to work half a year to pay taxes. while half the country pays nothing,
and that is called fair and equitable.

09-04-2008, 12:15 AM	#1 (permalink)
Breakage Status: Super Horse Join Date: Sep 2003 Posts: 6,396	Obamanomics BY DAVID HOGBERG INVESTOR'S BUSINESS DAILY Posted 8/22/2008 With the U.S. suffering from low GDP growth, job losses, a credit crunch and weak housing activity, Barack Obama's tax plan would help or hurt, depending on which economist you ask. Obama would boost the tax burden over current policy, shift the tax burden to higher earners, and result in higher marginal rates for the top earners and for some in the middle class. His plan would raise taxes by $627 billion over 10 years, based on likely assumptions, according to an analysis by the Tax Policy Center, a joint project of the liberal Urban Institute and the Brookings Institution. Alan Viard, resident scholar at the conservative American Enterprise Institute, claims the Obama plan would jar growth. "The higher marginal rates at the top would, all else equal, tend to reduce economic growth by impeding work and capital accumulation," he said. Michael Ettlinger, vice president of economic policy at the liberal Center for American Progress, disagrees. "I think it's a good plan. It balances needed investments in energy and education with the need to be fiscally responsible," he said. The Obama plan would raise the top two marginal rates of 33% and 35% to 36% and 39% and hike the capital gains rate from 15% to 20%. The effective top marginal rate of 38% for top earners could rise to 48% to 50%,including a new Social Security payroll tax on wage income above $250,000. While Viard notes that Obama's tax increases wouldn't be as large as previously thought, they would still do "harm to long-run growth from reduced incentives," he said. Bob Williams, an economist with the Urban Institute, sees a milder effect. "Increasing the top rates may change how the people at the top realize income," he said. "But it is unlikely to affect how much income they earn." On the lower end of the income scale, Obama's plan would expand the earned income tax credit and the payroll tax, plus help out with child care and retirement savings. It also would scrap income taxes on the elderly making less than $50,000 annually. "That puts money in the hands of those most likely to spend it," said Williams. "The tax cuts are well targeted to boost demand," Ettlinger concurred. "The credit reducing the payroll tax for lower income workers is exactly what our economy needs." The Obama plan would cut taxes for many middle class earners. The ones left out would find tax credits phase out as income increases. "Many middle-income households will face somewhat higher effective marginal tax rates due to the phase-outs," said Viard. Under the Obama plan, a family of four with an income of $31,000 to $45,000 could end up with a marginal tax rate 34% to 39%, 13 percentage points higher than under the current tax code. Even with lower overall tax takes, higher marginal rates could reduce the incentive to work or improve skills to seek higher-paying jobs. Much of the impact of the Obama plan may hinge on how it treats the federal budget deficit, which this year is projected to swell to more than $400 billion. "It depends on how Obama pays for his tax cut," said Robert McIntyre, director of Citizens for Tax Justice. "If there is no long-term borrowing, it will not have a long-term drag on the economy." The Tax Policy Center analysis shows that the Obama plan would reduce the deficit by $800 billion over 10 years — assuming Obama would not cut or increase spending. But Obama has promised to boost spending by at least $126 billion annually, with increases in education, medical insurance, the environment and foreign aid. He has also promised to cut spending by an undetermined amount by ending the Iraq War, reducing subsidies to Medicare HMOs and farmers, and improving health insurance efficiency. Ettlinger worries that reducing the deficit could hamper government spending in energy infrastructure and education. "If the Obama plan were to solely focus on deficit reduction, it would harm the economy," he said Economists also are divided over the short-term pros and cons of Obama's plan, given the economy's current weakness. "It is just what the economy needs since our current troubles are likely to move into next year," Ettlinger said. Regarding the increases in the top rates, Williams said: "Raising rates in times of an economic downturn is a bad idea. Timing is important with this plan." --------------------------------------- some people get to work half a year to pay taxes. while half the country pays nothing, and that is called fair and equitable. __________________ "An inexhaustible good nature is one of the most precious gifts of heaven, spreading itself like oil over the troubled sea of thought, and keeping the mind smooth and equable in the roughest weather." Washington Irving Last edited by Breakage : 09-04-2008 at 12:59 AM.