Sunday, September 07, 2008

Obama's Tax Proposals

There is an interesting Wall Street Journal piece by two of Obama's people available on the web, giving their account of his tax proposals. The central claim is that Obama would raise taxes somewhat on taxpayers with incomes above $250,000, lower taxes somewhat on everyone else, and that the net effect would be a reduction, not an increase, in tax revenues. That is not the impression one gets from the campaign oratory or news stories. The interesting question is whether it is true.

That, I think, depends on two different questions. One is how complete the description in the article is. The article refers to "reforming" corporate taxes but does not go into details. Taxing rich and soulless corporations sounds unobjectionable, but corporations have no consumption of their own to reduce, so corporation taxes ultimately fall on stockholders, employees, customers, and suppliers--human beings all. The more detailed account of Obama's plans that I got by following links from the article proposes to "Broaden the corporate tax base and eliminate special preferences," which might imply an increase in the total.

The second question is whether Obama is actually going to reduce total federal spending, as the article claims. I hope it is true, but I have my doubts. It is easy enough to campaign against waste, earmarks, and the like, as many politicians have done in the past, but hard to do much about them. And the Obama campaign has proposed some pretty expensive new programs, in particular something that sounds like a near universal service version of a domestic peace corps, with college age students paid generously to do good under government auspices. That could cost a lot of money.

On the other hand ... . Despite Republican oratorical support for low spending and balanced budgets, the Bush administration has done a strikingly bad job in both respects. Perhaps Obama really does plan to satisfy his more enthusiastic supporters with lots of symbolic fluff but only moderate amounts of money. A democratic administration that succeeded in doing the things Republican administrations claim and don't do would be in a very strong position in the next election.

Which leads to an obvious question. Can any reader point me at a competent and critical analysis of Obama's tax and budget plans?

14 Comments:

At 12:20 AM, September 08, 2008, Anonymous Anonymous said...

http://taxprof.typepad.com/taxprof_blog/2008/06/comparison-of-t.html

Here's a reference to the Tax Policy Center's comparison. I don't know enough about the Tax Policy Center to comment on their political leanings, but they claim to be non-partisan.

Here's the bottom line:

If enacted, the Obama and McCain tax plans would have radically different effects on the distribution of tax burdens in the United States. The Obama tax plan would make the tax system significantly more progressive by providing large tax breaks to those at the bottom of the income scale and raising taxes significantly on upper-income earners. The McCain tax plan would make the tax system more regressive, even compared with a system in which the 2001–06 tax cuts are made permanent. It would do so by providing relatively little tax relief to those at the bottom of the income scale while providing huge tax cuts to households at the very top of the income distribution.

 
At 12:25 AM, September 08, 2008, Anonymous js290 said...

Isn't reduced tax revenue a desirable effect?

Seems like a first order effect on reducing govt spending is to reduce military spending. Are the Democrats ore Republicans more likely to cut military spending?

 
At 12:45 AM, September 08, 2008, Blogger David Friedman said...

The Tax Policy Center finds that Obama's plan makes taxes somewhat more progressive, McCain's somewhat less. But they also conclude that both plans would produce very large increases in the deficit, so presumably they don't believe the claim in the piece I linked to that Obama would actually cut spending.

 
At 6:44 AM, September 08, 2008, Blogger dWj said...

One of the critical questions is how one counts "refundable credits". My understanding is that the Obama plan overall reduces total federal revenues net of refundable credits to low-income households, where if you view payments to individuals without tax liability as a low-overhead welfare program that counts as an expense rather than as negative tax revenue, government revenue increases under the Obama plan.

From an economic standpoint, I think redistribution is likely to create smaller deadweight losses than bureaucrat-directed spending, so that he should get at least partial credit for these payments, but from a moral standpoint of taking money from people who earned it and interfering in their economic lives, it makes more sense to sum over max(taxes,0).

 
At 7:01 AM, September 08, 2008, Anonymous Anonymous said...

According to Obama, taxes serve a higher purpose than providing the government with revenues:"justice". I don't think any of the announced plans can be trusted and thus elaborate analysis is not very useful. However, if Obama's view of taxation is any indication, it's scary.

 
At 9:03 AM, September 08, 2008, Blogger Gary McGath said...

I find it unbelievable that Obama will reduce federal spending, particularly with a Democratic Congress. If he reduces net tax revenues (unlikely, but slightly more plausible), then his administration will run even bigger deficits than Bush.

We should then expect that the Democrats who have howled about the irresponsibility of Bush's deficit spending will object at least as much to Obama's ... or maybe not.

 
At 10:44 AM, September 08, 2008, Anonymous Anonymous said...

I believe the TPC study ignores generic statmens like "I will lower spending" in favor of ones which are a little more specific.

 
At 10:58 AM, September 08, 2008, Anonymous Anonymous said...

The President has much more influence over foreign/military spending than over domestic spending. And it's almost certain that this spending will be lower, perhaps much lower, under Obama than under McCain.

 
At 3:06 PM, September 08, 2008, Blogger Sean O'Hara said...

I was talking to a guy who owns a small business (LLC), and he claimed that Obama's tax plan would make his company borderline unprofitable.

 
At 5:24 PM, September 08, 2008, Anonymous A Lewbel said...

You wrote, "Perhaps Obama really does plan to satisfy his more enthusiastic supporters with lots of symbolic fluff but only moderate amounts of money. A democratic administration that succeeded in doing the things Republican administrations claim and don't do would be in a very strong position in the next election."

This is exactly what Clinton did repeatedly - pass NAFTA, etc., while proposing big sounding social initiatives and funding them at ineffectual (for good or ill) levels, thereby cutting deficits while appeasing his base.

Obama's increasing the progressivity of the tax code seems like a good idea socially, given the rapid rise in inequality over the last decade. And cutting back on wars costing hundreds of millions of dollars a day can fund an awful lot of social programs with deficit cutting savings to spare.

 
At 9:48 PM, September 08, 2008, Anonymous js290 said...

I was talking to a guy who owns a small business (LLC), and he claimed that Obama's tax plan would make his company borderline unprofitable.

So, what your friend is saying is without favorable tax code (i.e. subsidies), his business is not profitable. Doesn't sound like much of a business plan.

 
At 11:51 PM, September 08, 2008, Blogger David Friedman said...

"And cutting back on wars costing hundreds of millions of dollars a day can fund an awful lot of social programs with deficit cutting savings to spare."

I made a suggestion along those lines some time back:

http://daviddfriedman.blogspot.com/2008/02/thoughts-for-obama.html

 
At 4:45 AM, September 09, 2008, Anonymous Matsuzaki said...

"[C]orporation taxes ultimately fall on stockholders, employees, customers, and suppliers"

Because of the "ultimately", it's true. But it seems to me that we should think of corporate taxes as falling directly on shareholders, and only indirectly on others. It's a tax on corporate profits, which belong exclusively to shareholders, and which are calculated by deducting from revenue, payments to employees, suppliers, and creditors.

If you made the corporate tax 100%, only shareholders would get screwed initially. (Later, the economy would die from lack of capital.)

In the same ultimate sense, a payroll tax is a tax on many different persons, indirectly, but its direct impact is only on employees.

It's good to look on the corporate tax as a tax on shareholders. If you mention the other personalities, it gets to sounding like it's a very diffuse tax that's paid by practically everyone. That makes it seem less scary. It should be a "frightening" tax and that's because it's a tax on shareholders. And the implication is that the primary effect of raising the corporate tax rate would be to make capital flee to cheaper venues (overseas). So, we should treat the corporate tax rate as being radioactive insofar as we want to maintain economic growth in the U.S.

 
At 11:52 AM, September 15, 2008, Anonymous Anonymous said...

The federal govt is a big corrupt sinkhole into which disgusting sums of money is poured and then used by bloated pigs to curry favor and buy votes. All you idiots talk about "Obama taxes this", and "McCain taxes this". How about you all just call for less govt, less waste, less social engineering, less socialism, less intrusion, less poverty pimping.........

 

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