Looking at the Candidates: Barak Obama Part I

Earlier in the week, I introduced my miniseries on the candidates of this years election and their primary economic plan to help the economy going forward. I figured i would start with Barak Obama only because this plan is now out there thanks to the Democratic Convention. the republicans are speaking this week as well but since the dems went first, I shall post some comments on Obama's plan first...then McCains.

So on Sunday I started by writing about this two main problems with America: The Rich are not paying enough in taxes and wages are stagnantt. Today I will attempt to give a view on the subsets of these "problems" if you will. The first is the middle class tax situation. Now, I don't claim to be in the middle class though I live very much like one (as I feel like I could lose all my money at any time in this market and thus I don't spend it). Anyhow, Obama indicated in his plan the following issues around the middle class tax situation.

• He will provide a $1000 tax credit for families that will "restore fairness to the tax code." The "making work pay" program will in turn eliminate taxes for 10 million people or about 2.5% of the population (assuming 250 million people).
• He will eliminate taxes on seniors who make less than $50,000 per year. this will immediately knock 7 million people off the tax rolls saving them on average $1400. Furthermore, 27million seniors will not even has to files taxes.
• He will simplify the tax filing process for most Americans so it takes less than 5 minutes to do your taxes. This supposedly will save $2 billion in filing fees.

Ok. so now the analysis. First, in looking at this plan, he pulls essentially 17 million people out of the tax paying pool or roughly 3% give or take. Interestingly, this small percentage accounts for a much even smaller amount of total taxes paid. Furthermore, they are statistically insignificant as it comes to paying down the finances of the US Government. In turn, he will attempt to raise the capital gains tax from the current 15% to the 20% level (not mentioned by the way) and basically tax the richer individuals in this country for taking risk.

Now, as I mentioned in my opening missive, I wonder about the usefulness of going after your biggest tax payers and making them contribute more. this plan mentioned above essentially is all fluff and no substance. If your goal is to penalize risk takers, just come out and say it! of course, this is politics so that will not happen.

In addition to these tax polices, there are also a few other tax situations mentioned in his plan.

• End Tax breaks for companies that send employees overseas.
  
• Reward those companies that hire more Americans with tax breaks.
• Provide a tax break for small business and start ups.
• Enact a windfall profit tax on energy companies that creates $1000 per year for middle class families.
  

These are all admirable positions to take. Personally I like them but I also do not like the practicality of them. By telling companies that they cannot send individuals overseas or you will get penalized for it, you are also indicating then that globalization will cost you - that is a very big negative in my opinion. Globalization is here. Embrace it. do not fight it or we will become like every protectionist state that fell over the past 300 years.

As for the second two, I don't think tax breaks should be given to companies that hire Americans. That is absurd. Companies are going to naturally hire an American. Why given them money to do so! As for the tax break on small business, I think that is admirable and a good policy. However, the taxes that small business faces is the problem - reforming that end of the code, and the double counting of taxes on employees (company pays taxes, the employee pays taxes of the same amount) needs to be fixed. Otherwise, this tax break, while short term useful, long term inadequate.

Finally, I ask, if the energy companies start losing money, will the government create an windfall profit taxes on say the consumer who is benefiting from the falling energy prices? This is a stupid policy that should be tossed out with the trash. it is dangerous to capital formation and will push companies overseas and create less jobs domestically. I just don't see the benefit. yet again, if I were a hard core liberal who does not understand a darn thing about the economy, this would make perfect sense. I am not though.