4%--That's What Joe-the-Plumber, Socialism, Communism, is All About

Our political dialogue is so pathetic that the major 'issue' McCain is trying gin up in the waning moments of this campaign is what they call the devastating effects of Obama's tax plan on people and small businesses that make over $250,000 without ever being called on the carpet for not stating how much that tax increase is.

4%--yes, that is it, the tax increase on the top bracket that McCain predicts will cause the sky to fall (further), and what prompts Sarah Palin to draw upon her deep knowledge of history and economics to pronounce it 'socialism', or, more recently, a nightmarish communism.

Our dearly-beloved news media, always preferring a manufactroversy (i.e., manufactured controversy) to useful dialogue, has fanned the flames of this issue. The news stations call on pundits of the right and left to argue about it, but never mention it is...4%. Joe Biden was even asked by a Florida News Station whether it amounted to Communism! 4%!

So, let us take an example. Suppose Joe does buy out his business, and suppose he works hard, and suppose there are not so many unemployed that business is good. Suppose the business, after expenses, takes in $300,000. What would be Joe's additional tax burden? About $2000...or less than 1% of his total income after expenses. In a $300,000 business that is almost rounding error. Moreover, if he provides healthcare for his employee(s), Obama will give him a $3000 credit.

Let us assume that fortune truly smiles on Joe, and his business nets $500,000 after expenses. His additional tax burden under the Obama plan? ~$10,000. If he had to hire a couple of more workers to do it, and provided them health care, Obama's plan would provide $9000 in credits. Moreover, if he decided to sell the business (say for 2X revenues against a purchase price of $250,000), his total capital gains tax under the Obama plan--ZERO. Under current law that McCain will extend, his capital gains tax would be $112,500.

Guess that must mean that McCain is a socialist. Hey Joe--want to re-think your allegiance?

What about the impact on the economy? In 1993 the Clinton budget raised the top bracket to the same rate as Obama proposes now. The Republican chicken-littlers could not have been more certain that the economy, already in the "Bush41-recession" (when the economy recovers and we are dying for another downturn, just elect Jeb, it's in his DNA), would tank.

But, what actually happened? Only 23 million new jobs, that's all. Damn those pesky facts anyhow!

In the aggregate, of course, the small increase on the top bracket will provide revenue for the government to offset partially expenses for what we desperately need--tax relief for the middle class who have lost real income under Bush/McCain policies, and some of the public investments in infrastructure, in health care, in a new energy economy, in education that have been languishing for the last 8 years.

Some may argue that the tax increase on the upper bracket ought to be deferred until the economy has recovered. That way, even more deficit spending will increase total demand in the economy.

Although plausible, such a policy is unwise because of the massive deficits of the borrow-and-spend Bush/McCain economic policies. We live in a globalized economy, and money has a funny way of insisting upon realism. We may assert moral exceptionalism all we want, but the financial world is like Missouri--it says "show me" everyday. In '93 the small tax increase on the upper bracket showed the markets that the US was, finally, fiscally serious. To re-establish credibility in the international system--just one more piece of US legacy Bush/McCain policies have trashed--we will gain more economic mileage by making that small tax increase.

I have previously addressed the stupidest part of the ridiculous McCain economic "program", viz., cutting government spending in a time of cratering private demand. Briefly, the experience of the New Deal in the 1930s is about as close to a controlled experiment as will ever be found in economics--FDR began lifting the country out of the Great Depression by deficit spending, then reversed that improvement by balancing the budget in 1937, and revivified the economy again by increasing spending to prepare for World War II. (See, "McCain's Plan: Not Just Worse than the Alternatives, but the Dumbest Idea Since Putin Reared His Head", October 15, 2008).

Moreover, the public investments FDR made--from rural electrification to soil conservation to public works projects--all redounded to the long-term benefit of the US economy once private demand re-emerged following World War II. Adam Smith, for all us real free market capitalists, would call that creating competitive advantage.

We know, today, with even greater clarity than in the 1930s, what public investments would not only create jobs and thus increase total demand in the short-term, but also provide a competitive advantage to the US when we cycle out of this downturn--renewable, home-grown energy; a reformed, more efficient healthcare system; world-class education; high-speed rail between cities and light rail within them; repairing roads, bridges; making fuel-efficient automobiles.

As we shed the people who brought us Iraq and the Great Recession, let us also shed their shibboleths.

Comments

[MajorKong]

Amazingly we made it through the 1950s with a top marginal tax rate of 92%. I don't think 39% is going to plunge us into a nightmare of Communism.

[Debbie1996]

Source for the zero capital gains tax ???? Obama has proposed doubling the capital gains tax to almost 30% and more recent spoke of increasing it to 20% - "Capital Gains: Families with incomes below $250,000 will continue to pay the capital gains rates that they pay today. For those in the top two income tax brackets – likewise adjusted to affect only families over $250,000 – Obama will create a new top capital gains rate of 20 percent. Obama’s 20% rate" SOURCE: http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf

[Paul Abrams - Huffpost Blogger]

He also proposes a ZERO capital gains tax for investments in small businesses.

[MatoSka]

The structural issues ingrained in the economy of the last thirty years has widened the gap between the rich and the poor. The chart from the study referenced below shows that the trend in increasing the concentration of wealth began around 1976. Let's not put filters on everything. Even if the news is as bad for one party, as it is for the other, it will be the truth that sets us free.

"The uneven distribution of economic gains in recent years continues a longer-term trend that began in the late 1970s. In the three decades following World War II (1946-1976), robust economic gains were shared widely, with the incomes of the bottom 90 percent actually increasing more rapidly, on average, than the incomes of the top 1 percent. But in the three decades since 1976, the incomes of the bottom 90 percent of households have risen only slightly, on average, while the incomes of the
top 1 percent have soared." http://www.cbpp.org/3-27-08tax2.pdf

[bannorhill]

Right now a single person earning $350,000.00 pays $101,574.00 in federal income tax.
Add another $17,300 for state income tax, 7% for sales tax ($24,500), 7.5% social security (7,500), Real estate taxes ($10,000). That's over $160,000 in taxas. WoW!!

[BassMonk]

Source please

[bannorhill]

http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

[BlackbirdHighway]

Sounds great to me - if anyone out there earns $350,000 and doesn't like it, I'll be glad to take the money, (and pay those taxes) instead!

[DavidNOE]

If he pays 7% sales tax on the whole $350,000 that means he spent $350,000 on things that have sales tax; nobody does that, even if they do spend their entire pre-tax income (which I'll admit a lot of people do, but not likely ones making $350,000 - if they do, they're insanely profligate and deserve whatever happens to them). You are at least correct on your total for SS taxes, since that's capped at $103,000 or so. And state income tax depends very strongly on which state you're in - quite a few states don't have income taxes.

[LeftRight]

Not to mention the fact that there are deductions for property taxes, and state income taxes, and the theoretical person making $350,000 wouldn't have that much to spend for sales tax, since not only are they paying income tax (which reduces money available to spend for sales tax) but there is also payroll taxes on the first $102,000, the sales tax itself, and ANYTHING spent on non-consumer goods.....

[bannorhill]

The sales tax may be a little high. The state tax is bases on Connecticut.

This did not include gas tax, telephone tax, water tax, sewer tax, auto registration tax, cable TV tax, city tax, employment tax, or any of the hidden taxes we all pay.

He would still be putting in 60-80 hour weeks so he can give almost 1/2 his paycheck to the government.

[LeftRight]

Your source for this, cause according to TurboTax with $350,000 in income, and NO deductions you are looking at less than $50,000 in taxes!

[bannorhill]

http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

Last page (13) schedule X. Single taxable income over $349,700 .....Tax $101,469.25 + 35% of $300= $101,574.25.

That is from the IRS forms.

[dumboldfarmer]

Thank you for writing a factual article. It was needed.

[BillMayor]

This message is for Joe the Plumber. McCain's tax proposal includes a reduction in the corporate rates from 35% to 25%. This translates into a 28.57% decrease in corporate income taxes. Now where do you think this shortfall will have to come from to cover this decrease? That's right Joe, you. So the next time you hear John McCain telling you about redistribution and socialism, don't be a fool (like they want you to be) and cheer.

Remember Robin Hood? Remember Richard I (the Lion Hearted?) He was the King that was taxing the poor to give to the rich. Is not taking money out of your pocket and giving it to the to the fat cats of Wall Street wrong. Next time you see John McCain or Sarah Palin you can tell them.

[bannorhill]

I have never had a job from a poor person. They can not afford to hire you. If we raise the taxes on the upper incomes they will also stop hiring new people. We need jobs. They only come from people who can afford to pay.

I have a friend who has a $3 million dollar construction business. It employs 10 people and he nets about $150,000 a year. He figured he could disolve the business lay off the 10 people and invest the $3 million and make the same money and a whole lot less work. If taxes go up he might close the business.

[LeftRight]

So why, then, do they always hire people when we institute progressive taxation, like, say, the 92% that existed under Ike, or even the 74% that existed under Kennedy, Johnson, Nixon, Ford, and Carter???? Or even the 39% that existed under Clinton? The fact of the matter is that when there is a higher income tax rate for the upper incomes they don't take as much money out of the company, and reinvest it in areas which usually involve HIRING PEOPLE!!!

Come back with a real answer next time please!

[cdub1991]

"In '93 the small tax increase on the upper bracket showed the markets that the US was, finally, fiscally serious."
--------------------------------------

So many folks seem to forget this outcome from the Clinton years. Foreign investment money poured into the US after that tax increase, because, despite our deficit, the US was seen as a good monetary risk. The government showed that it was willing to pay the bills and not just run deficits into the indefinite future. Deficits can be carried for awhile, as long as there is reason to believe that they will be controlled. It's uncertainty that causes the most problems in markets of any kind.

[brooklynite77]

thank you thank you - I have been waiting for the O campaign to make that argument about deficit spending during the New Deal and WWII (as opposed to a spending freeze). The attempt to balance the budget by ending deficit spending in 1937 was what caused a second economic downturn, while projects like the TVA created jobs and boosted the economy. If the US would put the same kind of investment in green energy, for example, as it did in producing WWII munitions, we'd be in much better shape than we are today.

[StephenDedalus82]

This whole neo-Cold War sloganeering is really making my head hurt. Obama is a socialist for wanting to return tax levels to a slightly more progressive level in order to, um, save the middle class. Yet he's being called a socialist at the same moment G.W. Bush is nationalizing the car industry. Good grief.

[sk1win]

I'm not sure if what detailed is exactly true. If you listen to Obama's discussion with Joe Werzelbacher he seems to be saying that the increase (Obama say 3%) would only apply to the amount of money OVER $250,000. That is, if your small business makes $260,000--you pay 36% on the first $250,000 and 39% on the other $10,000. Your essential point is correct but I think Obama's tax plan is even less of a burden than described.

[judyc]

You pay the tax on Adjusted Gross Income above $250K--so all expenses are taken into account first.

[Paul Abrams - Huffpost Blogger]

You pay on the adjusted gross income (income minus deductions) progressively at different levels until you hit the top level. So, if the increase is 4%, and Joe made $300,000, the EXTRA he pays is 4% of $50,000 or $2000. At 39%, he pays $19,500 on the last $50,000, and, under current rates, he would have paid $17,500.

Hope that helps.

[LeftRight]

That's not quite right. When you hit the next higher bracket you pay that percentage on the FULL taxable income. In other words, when you are at dollar "X", you pay "A" percentage, if you go up one dollar to taxable income "Y", you pay "B" percentage.....

[mmerose]

I read something about a Katie Holmes handbag purchase recently, so I Googled it, and found out Katie is a serial megabucks handbag afficianado. One Hermes handbag was estimated at $8900. Now, I know it's not a direct correlation, but say Katie paid 4% more in taxes, gee do you think she could get by with only a $8,544 handbag? Funny, I and a lineup of "real" Americans at Big Lots yesterday figured that wouldn't be an inhumane hardship.

[clamperken]

This continuing lack of the exact details of these candidates plans, iether economic or security by the mainstream media is a serious problem. Yes there are plenty of websites an educated and curious voter can go to to find thier proposals, but the real danger is that not everyone has a computer. Even amongst those who do, many are less computer literate and only follow the links given by the original sites. These will almost always be biased towards those sites. Also, the largest % of registered voters are older Americans who have not kept up to speed with computer technology. This especially applies to rural areas of the country. Most of the information these recieve is from the media, particularly T/V. It is the responsibility of all news networks to give all of this information to it's viewers. Unbiased and well researched rather than 15 second soundbites and he said / she said nonsense. Until the MSM is called on this our elections will continue to be decided soley on the basis of fear, lies, and deception.

BE SURE TO VOTE!!!!!! EVERY VOTE COUNTS, ESPECIALLY YOURS!!!! GET OUT AND VOTE!!!!!
OBAMA / BIDEN 08'

[GodlessAmerican]

Thanks for lining this out for us. Great article. I don't know what we can do to change those that absolutely believe in republicans. How do you convince someone that's a religious fanatic to give up their fanaticism?

[NYCSocialWork]

In an episode of PBS' Frontline-

http://www.pbs.org/wgbh/pages/frontline/choice2008/

McCain's OWN CAMPAIGN CHAIRS admit that the only way he could come back after 2000's loss was to align himself WITH BUSH! Now they're trying to distance him from that!

[profus]

The Bush tax cuts moved trillions of dollars from the middle class to the wealthy, but of course was "patriotic", and undoing the damage is "socialism". This is the typical hypocrisy of the Republicans!