ROBB AUSTIN'S TURN
Basics of Bush Tax Policy to Remain
October 18, 2008
With all the talk in the 2008 presidential campaign about fiscal change and the anti-Bush sentiment that permeates the race, the fact is major elements of the Bush economic tax policy will remain regardless of who wins the White House.
Both Barrack Obama and John McCain will keep the Bush tax rates for wage earners making under $250,000 a year. Obama’s plan goes a step further as he will send checks (somewhere between $1,000-$1,500) to individuals with the lowest income including those who pay no taxes at all.
Bush believed that tax relief should be targeted to those who pay taxes. Obama supports income and wealth redistribution, essentially taking money from wealthier individuals and giving that money to those less fortunate. For obvious reasons this is a risky idea.
While details of Obama’s plan will not be known until he actually turns his concepts into legislation sometime next year if he is elected, much can be gleaned from his campaign speeches. His concept to send a check to the nation’s lowest wage earners is similar to what President Bush did during his two terms in office to stimulate the economy with the only difference being that individuals not paying taxes will also get a check from the government.
President Bush extended unemployment compensation benefits for those who lost their jobs through no fault of their own twice while he has been in office; however, Obama also wants to exclude persons receiving unemployment checks from paying taxes on such income.
The Obama plan will be paid through higher income taxes on persons making over $250,000 per year.
Contrary to what he says Obama will raise taxes on people making below $250,000 but it won’t be from higher income tax rates. Instead, he will eliminate the wage base cap (currently $104,000) on which persons pay into the Social Security system and by doing so, anyone making under $250,000 will be hit with higher taxes. Those hardest hit will be the smallest of individual business owners and self-employed people including house painters, plumbers, attorneys, consultants, musicians, landscaping companies and the like.
This is a big tax and the result from Obama’s lifting of this cap will hit people hard. In 2008 individuals with an income of $180,000 pay 6.2% on the first $104,000 of income, or $6,468 in taxes, and the employer also pays $6,468. Self-employed individuals making $180,000 pay both sides (employer and employee) of this tax or $12,936 in social security taxes.
Under Obama’s plan a person making $180,000 per year will pay $11,160 (matched by his employer) - a $4,692 tax increase - while self-employed individuals will pay $22,320 - nearly a $10,000 per year tax increase. For many self-employed people the social security tax is just as much of a tax burden as the federal income tax.
The McCain economic plan is similar to President Bush’s plan in that he will keep current tax rates for everyone – including the rates for people making over $250,000 a year – and does not plan to raise the capital gains tax as Obama says he will do. He does not favor redistributing wealth from one class of people to another.
Obama also has made a big deal about taxing corporations and, of course, this sounds like a good idea to some Americans. But you’d better read the fine print and take stock on the past before signing off on this idea.
Corporations do not pay taxes. The corporate balance sheet shows expenditures and everything that is not income falls into this category for corporations - including taxes. Expenditures are ultimately subtracted from company revenue and this provides the bottom line or profit margin. When expenditures become too high, corporations do what the government doesn’t - they eliminate unneeded people and programs. They also very often raise revenue by charging more for their product - thus consumers cover corporate expenditures - including company taxes.
The 1998 Tobacco Master Settlement Agreement (MSA) is a perfect example. The MSA provides for restrictions on practices by the tobacco manufacturers and payments to states for health care costs associated with tobacco use. The tobacco companies have paid billions of dollars in the past ten years under this agreement, and these payments have come from consumers who pay higher prices for a pack of cigarettes.
The economics are simple: corporations do not pay taxes - you do.