Barack Obama wants to sell his tax package as a solution for the American middle class in times of economic turmoil. No state has known economic turmoil quite as much as Michigan, where Democrats have tried a soak-the-rich series of policies that have resulted in high unemployment and low investment. The Detroit News sees the same problems in the Obama package:
There are tax cuts for some, and that could be a positive. Obama promises to energize the middle class by eliminating income taxes for most households earning less than $75,000 year, which would trim 10 million earners off the tax rolls.
President Bush excused a similar number of Americans from tax liabilities in his 2001 cuts, and our concern now is the same as it was then — that shrinking the group of Americans who actually pay for government creates a smaller constituency for fiscal prudence.
While giving part of the middle class a break, Obama would wage what could be described as a war on wealth through the tax code. He would restore the tax rates on those earning more than $250,000 a year to pre-2001 levels, remove the cap on payroll taxes for upper-income earners and push the current 15 percent capital gains tax rate to 28 percent.
While soaking the rich might have some political resonance, it’s risky to strip investment incentives from those most likely to create jobs. And despite the rhetoric, even with the Bush tax cuts, the top 1 percent of American earners still carry 35.6 percent of the tax burden, compared with 31.6 percent in 1996, according to the Internal Revenue Service.
This is the great unreported truth of tax revenues under the Bush administration. The rich pay more as a percentage of federal revenues now than they did during the Clinton administration — in part because of the Bush tax cuts. The big cut in the capital-gains tax rate encouraged more investment and more diversity on the part of major venture capital funds. That allowed more businesses to open, more jobs to be created, and more profit to tax, increasing revenues to the federal government.
Instead of following the obvious success of these specific cuts by reducing the corporate tax rates, the highest in the Western world, Obama wants to reverse the very cuts that resulted in the wealth redistribution he seeks. He wants to return the capital-gains tax rates to their pre-Bush levels, which will have two effects. First, venture capitalists will sell off their investments ahead of the rate change to avoid the new rate, and they will find safer investments in the future rather than pay the same level of tax on riskier investments. Both effects will cost jobs in a market that can hardly afford to shed more of them, and in the end it will reduce rather than increase the revenue stream to the federal government.
The News finds more fault with Obama than just with capital-gains rates. They warn against destabilizing relations with our biggest trading partners on oil, Canada and Mexico, by attacking NAFTA while oil prices are going through the roof. Obama also wants to duplicate the economic effects seen this year by the minimum-wage hike by indexing the federal rate to inflation, ensuring a year-on-year inflationary effect of increased labor costs in entry-level positions, and creating a disincentive for businesses to create those jobs. They also hit Obama for his support for card-check legislation, accusing him of supporting the theft of a “basic right” from workers for a secret ballot in organizing activities.
The dispassionate tone of the News’ criticisms belies the breadth of their opposition to Obamanomics. Clearly, they see this as an extension of the disaster Democrats have wrought in Michigan.