Below is a good analysis from Cato blog...
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http://www.cato-at-liberty.org/2008/11/10/obamas-tax-promises/
Obama's Tax Promises
Chris Edwards
... Note that many of Obama's proposed tax breaks are "refundable," meaning that much of the effect is to increase federal spending, not to cut taxes. Refundable tax breaks involve cash hand-outs to many people who do not pay any federal income taxes.
With that in mind, here are Obama's main proposals to change the tax system from its 2008 structure:
Tax Increases
Raise the top two personal income tax rates from 33 and 35% to 36 and 39.6%, respectively.
Restore the income phase-outs for personal exemptions and itemized deductions, further increasing effective tax rates at the top end.
Raise the top capital gains tax rate from 15 to 20%.
Raise the top dividends tax rate from 15 to 20%.
Increase taxes on oil and gas companies.
Increase taxes on U.S. multinational companies.
Combined Spending Increases / Tax Cuts
Making Work Pay. A refundable tax credit of up to $500 for low-income workers.
Mortgage Credit. A refundable tax credit of up to $800 for nonitemizers who own homes.
Saver's Credit. A refundable tax credit of up to $500 per family for retirement saving.
American Opportunity Credit. A refundable tax credit of up to $4,000 for education expenses.
EITC Expansion. Expand the refundable earned income tax credit.
Child Care Credit. Turn the current child care credit into a refundable credit.
The Urban/Brookings analysis (pages 22 and 25) found that more than half of the dollar impact of these six tax code changes will be to increase federal spending, not to cut taxes. That's $648 billion more in federal spending over the next ten years. In addition, Obama is proposing a new refundable tax credit for buying health insurance.
Tax Cuts
Exempt people age 65 and over from federal income tax if they earn less than $50,000.
Minor business incentives. These promises were so small and undefined that the Urban/Brookings study didn't even score them.
Conclusions
For the economy, for tax code complexity, and for the America ideal of equal treatment under law, Obama's tax proposals would be a disaster. With Obama's tax and spending proposals, government as Santa Claus has reached new heights.
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Related papers I wrote recently:
(1) US Budget Deficit
October 23, 2008
Before the $700B bail-out was even proposed, projected US Federal government budget deficit for 2008 alone was $480B. Not included there are budget deficit by various states, cities, counties in the US, also budget deficit of certain government enterprises. So the consolidated public sector deficit (federal + state + other local govts + govt corporations and banks) could be in the $1 trillion + or - several billion $.
That is why I consistently question the logic, the institutions that cannot even discipline themselves in terms of appetite to live beyond their means, are supposed to be the "saviours" of corporate failures?
Is government failure the solution to market failure?
If there are market solutions to market failure, then there should be govt solutions to govt failure. Govts, US govt in particular, should start in their own backyard by stopping the bleeding in their fiscal balance sheet.
But with the current bail-outs and take-over or part-nationalizatio n of a number of private banks, government failure and irresponsibility is being injected with more irresponsibility.
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A friend here in Manila, Lardy, shared this funny caricature about the fiscal condition at the end of the following US Presidents:
Ronald Reagan, Fiscal conservative ...... $200 billion deficit
George Bush, Fiscal conservative ......... $300 billion deficit
Bill Clinton, Tax and spend liberal ......... $200 billion surplus
George W Bush, Fiscal conservative ..... $482 billion deficit
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Those were nice points. Among my favorite US think tanks is the Cato Institute (www.cato.org). It assembles in one roof many of the world's intellectual giants who believe in more personal responsibility, limited government, and more personal responsibility. Many of them have never been a fan of either the Democrats or the Republicans. Rewarding personal irresponsibility with various subsidies is like choosing which way to socialism, by train or by plane.
Why can't the guys from both parties move to sell and liquidate Freddie and Fannie, get the billions of $ and use it for the bail-out now that it is a law?
From some of my readings, those 2 state enterprises are the depository of nepotism and rent-seeking politicians and bureaucrats, mostly from the Democrats, but some Republican politicians were also showered with some lobby money.
(2) The US' $56 Trillion Debt Timebomb
October 08, 2008
I stumbled on this commentary today in CNN, below…
Commentary: America's $53 trillion debt problem
by David Walker
http://edition.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html
The Emergency Economic Stabilization Act contains plenty to make lawmakers on the left and right shudder. On the right, it's the apparent abandonment of free-market principles. On the left, it's the absence of punishment for high-flying Wall Street CEO's....
The nation's real tab, on the other hand, amounted to $53 trillion as of the end of the last fiscal year. That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations -- all according to the government's most recent financial statement of September 30, 2007.
The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year....
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The US' gross domestic output (GDP, the combined production of goods and services by the federal + local & state governments + private corporations + households) in a year is about $14 trillion. The cumulative debt of the federal government alone will be about 4x of GDP!
If federal debt + state and local govt. debt + corporate debt is combined, how large can it be, $100 trillion? $200 trillion? More? I don't know. But maybe Batman and Spiderman know the answer.
Now, if we listen to many legislators, media commentators and just many other people out there, they say that the US government should do more regulation of all private corporations, whether sinking or floating high up there. Really? They mean, an institution that can irresponsibly accumulate an estimated $56 trillion debt that's 4x of GDP is expected to be the "bright guys" to provide “leadership” in regulating further all private corporations, responsible or irresponsible, earning or misbehaving, private corporations?
Sorry, I really can't see the logic. But then again, maybe Batman and Spiderman can provide the mathematical and philosophical logic.
Meanwhile, got a Filipino friend here in Manila, Sam, who, when we were forming "Minimal Government" way back in 2004 for registration with SEC, commented, "The name sucks! Eeewwww! Why not 'atomize' or 'vaporize' government?"
He has migrated to the US about 2 years ago, but thanks to that capitalist invention called “yahoogroups” or other online networking and web-based mails for free, communication anywhere around the world is very easy. Sam recently wrote, “I agree that change is constant. I am no fan of big government and still have to experience this animal called minimal or no government but smart government? The term smart government is in my opinion oxymoronic. It is and remains a pipe dream.”
Keep on kicking, Sam!
(3) America's Finance Socialists
July 27, 2008
The bailout of Fannie and Freddie (F&F) in the US seems to be over. I read a good article criticizing it as clear socialist attempt at using taxpayers' money to bailout irresponsible fund managers. The author, Gerald O'Driscoll, noted that capitalism without bankruptcy is like religion without sins. So true. Corporate and individual bankruptcy is part of a free society. If people cannot go bankrupt, if they cannot become poor, then they will become irresponsible, complacent and lazy. And there will be equality in society, everyone is equally poor and miserable.
I find the author's writing style frank and funny (f&f, hehe).
Read on!
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http://www.cato.org/pub_display.php?pub_id=9559
Treasury's Thieves
by Gerald P. O'Driscoll Jr.
Gerald P. O'Driscoll Jr. is a senior fellow at the Cato Institute. He was formerly vice president and economic adviser at the Federal Reserve Bank of Dallas.
This article appeared in the New York Post on July 23, 2008.
Treasury Secretary Henry Paulson's bailout plan for mortgage giants Fannie Mae and Freddie Mac should be titled "The Bondholder Relief Act of 2008": The taxpayers will be providing the relief to holders of Fannie/Freddie debt, many of whom are foreigners.
Paulson has asked Congress for a blank check from the taxpayer to pay off investors for losses already incurred and likely to be incurred in the next few years. He told Congress that, if it promises unlimited funds to backstop the lenders, Fannie and Freddie are unlikely to draw on the credit line. But the nonpartisan Congressional Budget Office estimates the most likely outcome to be a cost of $25 billion over the next two years - and more if housing deteriorates further.
He also wants authorization for Treasury to buy senior preferred shares in Fannie and Freddie. That prompted Sen. Jim Bunning (R-Ky.) to remark that he thought he'd woken up in France. Yes, socialism is alive and well in America - thanks to a Republican Treasury secretary.
Absent from Paulson's plan is any protection for taxpayers. They'll fund the downside if losses mount at the two mortgage giants. But if Fannie and Freddie recover, stockholders and management gain. Call it "casino capitalism" - taxpayers bankrolling management high rollers.
The plan doesn't ask stockholders or management to suffer for their financial indiscretions. The players who put their companies in jeopardy get to stay in charge - Paulson says he isn't looking for "scapegoats." Someone should remind him that capitalism without failure is like religion without sin.
There are now three possible outcomes:
* Congress passes the Treasury plan in its current form. That gives us the status quo on steroids - Fannie and Freddie continue to make risky bets and rack up more losses, with the taxpayer guarantee fueling the financial fiasco. This would be the worst outcome, but it's where we're headed.
* We could truly privatize the two companies: Remove the federal guarantee and force them to retrench and reform. Fannie and Freddie would have to raise private capital and downsize their bloated portfolios. They'd become just two ordinary-sized financial firms, whose balance sheets would be measured in billions, not trillions, of dollars. A long shot now, this would be the best outcome.
* Nationalize both companies and end all pretense that they're private. (Fannie was a government agency until 1968; Freddie was only chartered in 1970.) They could return to being federal guarantors and packagers of mortgages, and would hold no sizeable assets themselves. This last approach is called "honest socialism."
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See also
US Debt 1: How Bloated is the US Govt? May 08, 2006
US Debt 2: Private Sector Bailout of Government, September 26, 2008
US Debt 3: Crisis of Irresponsibility, October 13, 2008
US Debt 4: Obama and US Entitlement, November 11, 2008
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