When is a tax cut not really a tax cut? President-elect Obama's economic program will reduce your tax bill if you jump through a series of hoops — or fail in business.
Considering how difficult it always is to control the growth of government, it's tempting to embrace what might be called the Will Rogers school of economics: "I never met a tax cut I didn't like."
Maybe any tax cut is better than no tax cut, but a clear view of what the incoming Obama administration has planned raises serious concerns.
Not surprisingly, considering the class-warfare rhetoric of his campaign, the next president has fallen into the politics-driven trap that has plagued so many of his fellow Democrats: being unable to support a plain old across-the-board cut because "the rich" might get to keep more of their money.
So instead of simply accepting the wisdom of the big Bush across-the-board tax cuts on income and investment, he'll propose what you could call "outcome-based tax-cutting": You're getting a tax cut because Uncle Sam wants a certain thing to happen, like a failed business to unfail.
That philosophy of government micromanagement of the private sector cannot work.
First, there's the glaring flaw that the Obama business tax plan gives a one-year tax credit for companies that generate new jobs or back off on layoffs.
The idea is to give them some relief while they're under strain, like handing a cup of Gatorade to a long-distance runner. But no one can run a marathon without food in his stomach and a road without obstacles.
Businesses need the certainty of low taxes in the long-term future to get past the financial crisis and do well, not the fiscal policy equivalent of a performing seal being rewarded with a sardine from its master.
Then there's Obama's proposed expansion of the write-off for businesses from the current $175,000 to as much as $250,000 for the next two years. This rewards firms who have done badly and may even encourage losses in the future.
Businesses that have done well get no such bonus. It's like applying the failed thinking behind welfare — cash handouts from the government for those who fail — to industry.
What's more, this would superimpose more complexity onto an already burdensome tax code. For accountants, the New Year's Eve party may have only just begun.
Finally, for run-of-the-mill taxpayers, there's Obama's "Making Work Pay" program. It begins with yet more rebates, which — as the Bush administration discovered twice — does little if anything to stimulate the economy.
Sending out nice, fat checks from the U.S. Treasury is an idea that goes back at least to the failed presidential campaign of George McGovern in 1972. But for a tax cut to have any real stimulative effect on productivity, it must serve to reward that productivity: the more you produce (i.e., earn), the bigger your tax cut.
Barack Obama may soon be saying in every speech he makes as president that he enacted the biggest tax cut in history — citing the mind-boggling figure of $300 billion.
But cash from Washington for people who don't pay income taxes, and for businesses that don't work, is not tax-cutting. Instead, it's exactly what Obama the candidate promised Joe the Plumber: wealth redistribution.
Considering how difficult it always is to control the growth of government, it's tempting to embrace what might be called the Will Rogers school of economics: "I never met a tax cut I didn't like."
Maybe any tax cut is better than no tax cut, but a clear view of what the incoming Obama administration has planned raises serious concerns.
Not surprisingly, considering the class-warfare rhetoric of his campaign, the next president has fallen into the politics-driven trap that has plagued so many of his fellow Democrats: being unable to support a plain old across-the-board cut because "the rich" might get to keep more of their money.
So instead of simply accepting the wisdom of the big Bush across-the-board tax cuts on income and investment, he'll propose what you could call "outcome-based tax-cutting": You're getting a tax cut because Uncle Sam wants a certain thing to happen, like a failed business to unfail.
That philosophy of government micromanagement of the private sector cannot work.
First, there's the glaring flaw that the Obama business tax plan gives a one-year tax credit for companies that generate new jobs or back off on layoffs.
The idea is to give them some relief while they're under strain, like handing a cup of Gatorade to a long-distance runner. But no one can run a marathon without food in his stomach and a road without obstacles.
Businesses need the certainty of low taxes in the long-term future to get past the financial crisis and do well, not the fiscal policy equivalent of a performing seal being rewarded with a sardine from its master.
Then there's Obama's proposed expansion of the write-off for businesses from the current $175,000 to as much as $250,000 for the next two years. This rewards firms who have done badly and may even encourage losses in the future.
Businesses that have done well get no such bonus. It's like applying the failed thinking behind welfare — cash handouts from the government for those who fail — to industry.
What's more, this would superimpose more complexity onto an already burdensome tax code. For accountants, the New Year's Eve party may have only just begun.
Finally, for run-of-the-mill taxpayers, there's Obama's "Making Work Pay" program. It begins with yet more rebates, which — as the Bush administration discovered twice — does little if anything to stimulate the economy.
Sending out nice, fat checks from the U.S. Treasury is an idea that goes back at least to the failed presidential campaign of George McGovern in 1972. But for a tax cut to have any real stimulative effect on productivity, it must serve to reward that productivity: the more you produce (i.e., earn), the bigger your tax cut.
Barack Obama may soon be saying in every speech he makes as president that he enacted the biggest tax cut in history — citing the mind-boggling figure of $300 billion.
But cash from Washington for people who don't pay income taxes, and for businesses that don't work, is not tax-cutting. Instead, it's exactly what Obama the candidate promised Joe the Plumber: wealth redistribution.
And this, in a nutshell, is liberal tax theology. This is such a great encapsulation of all that is wrong with liberals. First, they lie. What they tell us we're getting isn't at all what we'll actually get. Second, they know what the American people want (tax cuts), and prey on that desire while they lie to our faces. Third, they prize 'fairness' above all else, and they believe they're the only ones who get to determine what's 'fair'. Fourth, it's all about control - they want to control who gets what rather than let the market dictate the winners and losers in business. It doesn't matter if a company is corrupt and/or incompetent, if they suck up to the liberals in charge enough, they'll get a bailout.
The other really bad part of this is that it draws us ever closer to the tax tipping point, with the number of people paying the taxes growing smaller and smaller. I've talked about this before, but here's a brief summary. Right now, the bottom 50% of wage earners only pay about 3% of the taxes in this country. Something like 60% of the taxes are paid by just the top 25% of wage earners. In short, it's a progressive system where the wealthy pay almost everything, and the poor pay virtually nothing. Once 50% of the wage earners in this country stop paying taxes, all sanity will cease because the 'poor' majority will have figured out that they can simply vote themselves a magical check from the shrinking minority that actually still pays taxes (i.e. produces something useful). Basically, you'll have the few supporting the many. That's what's happened in Europe, where socialism is drowning most countries in handouts and excessive benefits, and very little productivity.
That's why almost every major development in technology, health care, and most other industries over the past few decades has originated from the United States - productivity is rewarded. Unfortunately, the more progressive/liberal/socialist the U.S. has become, the more our leadership gap has shrunk. If Obama implements his policies, we will see the same kind of full-bore socialism that has caused Europe to fail.
That's where we're headed if liberals get their way. I don't know about you, but that's some fairness that I'd like to avoid.
One last thing. Even after this announcement of Obama's tax 'cuts', what did the stock market do? Did it shoot upward on the optimism of hope for a real fix in the near future? No. It meandered around and ended up just a wee bit - 62 points, and the last hour of the day actually saw a pretty steep decline. Now, if this was such a great thing like Obama says, wouldn't investors reflect that reality immediately? Hmmm... Maybe they see this tax 'cut' for the lying head fake that it is.
There's my two cents.
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