Economy & Budget

Why Obama Is Likely To Win Despite the Palin Bump

"The economy is certainly not going to be a positive for the Republicans.” — Ray Fair, Yale University forecaster

If you think Gov. Palin’s addition to the McCain ticket will make a big difference in the election, dream on.

The evidence is overwhelming that pocketbook economic issues — inflation and jobs — is the key factor in determining the next president. The famous Misery Index (unemployment rate + CPI inflation index) is at the highest level since the first Bush lost his bid for reelection in 1992.

Right now, according to the Iowa Electronic Market, a futures market in politics, Obama has consistently led McCain, and is most likely to win in November with 53% of the vote. The IEM is also predicting that the Democrats will maintain control of both houses of Congress.

It’s the Economy, Stupid

Two separate studies by political economists confirm the that, given the darkening economic outlook, Obama will win between 52-55% of the vote.

The most predictable election model is prepared by Yale economics professor Ray Fair. He forecasts a win by Obama, but not a landslide — large because of the sluggish US economy and growing inflation.

The “Bread and Peace” model by Swedish economist Douglas Hibbs says the election hings on two fundamental factors: real disposable income and military deaths in foreign combat. Hibbs concludes, "Given those fundamental conditions, the Bread and Peace model predicts a Republican two-party vote share centered on 48.2 percent."

On the positive side, the number of casualties in Iraq has been declining sharply lately. But unless the economy recovers soon and inflation subsides, the Republicans are likely to lose in November.

Why a Democrat-Controlled Government is Dangerous: First, Soak the Rich

The consequences of a full Democrat control of government are scary, especially if the Democrats increase their control of the Senate to 60 Senators, which would make it difficult for Republicans to filibuster.

One of the first priorities of an Obama administration will be to reverse the Bush tax plan and a dramatic shift in the tax code toward greater complexity and progressive structure. This includes the following:

— A tax credit for 95% of American taxpayers. Obama proposes a $500 cut in the payroll tax for most workers (those making under $125,000 a year) via a credit that is applied toward income taxes based on payroll taxes paid. Thus, if you don’t pay federal income taxes, you wouldn’t get the tax cut. The tax credit would take effect immediately, in the form of a rebate, to stimulate the economy.

— A massive tax increase for taxpayers earning more than $250,000 a year in the form of higher Social Security taxes, higher Federal tax rates, and higher taxes on dividends and long-term capital gains (from 15% to 28%). Steve Moore, editorial writer for the Wall Street Journal, estimates that all told wealthy individuals could pay a marginal tax rate of nearly 50%, compared to the current 34% rate.

The New York Times reported (August 8, 2008) that Obama’s tax increases will be “slightly higher” than they were under Clinton’s tax hike of 1993. Clinton got away with the tax increases, because they took place during the roaring economic boom of the 1990s, but Obama’s sock-the-rich scheme is likely to backfire in the face of a weak economy. Revenues are likely to decline rather than increase.

Obama’s tax plans confirm an old saying by the great economist Adam Smith: “There is much ruin in a nation.”

Today, we might change that famous quote to: “There is much ruin in an Obama-Nation.”


Sign Up