Barack Obama: A Wolf in Sheep's Clothing

Consider these quotes made last week by a presidential candidate:

“I believe that America’s free market has been the engine of America’s great progress. It’s created a prosperity that is the envy of the world. It’s led to a standard of living unmatched in history. And it has provided great rewards to the innovators and risk-takers who have made America a beacon for science, and technology, and discovery.” (9/17/07)

“It’s time to cut through the complexity. When I’m President, we’ll put in place a system where 40 million Americans with a job and a bank account who take the standard deduction can do their taxes in less than five minutes…Making this change would save Americans more than $2 billion in tax preparer fees, more than 200 million hours of work, and an incalculable amount of headache and heartburn.” (9/18/07)

“As we make these changes, we’ll be sure to encourage growth and innovation. So we’ll exempt start-up companies and small businesses from capital gains to give them an added boost. Because when more Americans tap that well of opportunity, all of us are better off.” (9/18/07)

No, these words are not Mitt Romney’s or Fred Thompson’s. Indeed they do not come from a Republican, but from the mouth of Barack Obama.

This type of rhetoric may represent a change in tactics by some Democrats and a realization by many in the party that an outright march toward socialism is a very hard sell in the USA, even with the Republican Party at long-term lows in popularity. So the tax wolves don sheeps’ clothing.

In the first speech quoted above, given September 17th at the NASDAQ, Senator Obama continued: “But I also know that in this country, our grand experiment has only worked because we have guided the market’s invisible hand with a higher principle. It’s the idea that we are all in this together,” a virtual parroting of Hillary Clinton’s “a ‘we’re all in it together’ society." It’s the sweet-talk, the seduction, before going for your financial jugular.

The next day, at a speech in Washington, DC, Obama pounced, proposing a “tax cut for working people”, a “universal homeowners’ tax credit”, and a “progressive tax cut for America’s seniors”. The tax wolf still cleverly disguised as tomorrow’s delicious (and free) lamb chops.

The “tax cut for working people” is meant to “eliminate all income taxes for 10 million working Americans.” Obama doesn’t specify whether this plan, described as a tax credit, would actually be refundable. In other words, if the credit is bigger than someone’s tax bill, would they actually receive a check from the Treasury?

The “homeowners’ tax credit” would allow homeowners who don’t itemize deductions to get some benefit from having a mortgage by giving a credit of 10% of their mortgage interest paid. Obama claims that for “most middle class families, this will add up to about $500 each year.”  Strangely, he argues that this amount will “give some breathing room” to people having subprime mortgage troubles, as if the difference between someone keeping or losing a house can be found in $40 per month.

As for the “progressive tax cut for Seniors”, Obama proposes to eliminate any tax liability for a Senior Citizen making less than $50,000 per year, which he believes will eliminate another 7 million people from the tax rolls.

Then, in fewer than 100 words, Obama mentions how he will make up the revenue lost to the government from these plans (don’t hold your breath for any suggestion of cutting spending). He plans to increase taxes on higher earners, dividends, capital gains, and carried interests: “We will also turn the page on an approach that gives repeated tax cuts to the wealthiest 1 percent of Americans even though they don’t need them and did not ask for them.”

While Obama spent most of his time talking about things that sound like tax cuts, the real result of his proposals would be anything but actual cuts in any economically-relevant way.  
Over 43 million of 136 million tax returns filed in 2006 had zero or negative tax liability. In other words, of the people who actually file a tax return, fully 1/3 pay no income tax or actually receive money. The bottom 75% of filers, making $60,000 or less, pay about a 6% average tax rate and contribute only 15% of the nation’s total federal income tax.

In other words, the people whose taxes Obama wants to cut already pay little or nothing in federal income tax, whereas the the top 5% of earners, making about $140,000 and up, pay an average tax rate of about 21% and pay 57% of total income tax receipts. The top 1% of earners pay an astonishing 37% of all income taxes. Furthermore, every major income tax “cut” we have had since JFK resulted in both increased government revenue (due to increased economic activity) and a more “progressive” (i.e. “soak the rich) tax code.
When enough people become dependent on government rather than contributors to its cost we slowly but surely approach the maxim (attributed to Alexander Tytler) that democracy “can only exist until the voters discover that they can vote themselves largesse from the public treasury”.

Obama’s aim to remove another 20 million people from the tax rolls is not only aimed at raising taxes on the wealthy, productive, job-producing part of society, but also on making more people dependent on government and thus more likely to vote for the party that supports redistribution over wealth creation. In economics, “we’re all in it together” can only mean “you’re in it for me.”

We must hope that voters are not seduced by the sheep’s clothing, that they see the bloody facts on the tax wolves’ fangs and realize that a vote for any of the current Democrat candidates for president is a vote to be economically eaten alive.