Obama's Tax Plan and the Law of Unintended Consequences

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  1. Obama's Tax Plan and the Law of Unintended Consequences


    I'm writing this thread because I actually want to hear if any Obama supporter has thought about how he is going to address what I see as one of the fundamental problem with his tax plan. I'm not interested in discussing the merits of a taxing the rich strategy (everyone who has read my posts knows I disagree with the plan). I'm really interested in hearing about what Obama's plan will mean in real terms, and whether it will have unintended consequences, similar to the ones I predict below.

    Kruger mentioned in one of his posts that he thought what would happen under Obama is that Wall Street and the private sector will just look for ways to get around his ungodly high taxes. It got me thinking.

    This is what I think will happen:

    -Anyone making under $300,000 but over $250,000 will ask their employer to lower their salary to $249,000 as after taxes it will probably be around the same number.

    -Anyone making significantly more money than $249,000 will probably look into getting a portion of their income in stock options, benefits, and other forms of compensation to skirt around taxes.

    -Small businesses will almost uniformly make $249,000 a year, while reinvesting the rest into the business and in tax write offs. Thats just good business.

    -I'm sure big business will have similar strategies as well.

    What this will cause:

    -Obama is counting on using the current situation for his tax plan to succeed, even though I think there will be a significant dip in over 250k income after his plan is implemented.

    -This means that there will be further revenue shortages. Debt will increase. We will be in worse shape.

    Any comments?


  2. I just don't understand how Obama thinks increasing taxes on the 1% who own 90% of the wealth will stimulate growth. People don't invest and spend more when they earn less. Pretty simple.
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  3. Have you thought this through in real terms?

    Maybe the accompany chart will help:

    Here's how the average tax bill could change in 2009 if either John McCain's or Barack Obama's tax proposals were fully in place.


    MCCAIN OBAMA
    Income Avg. tax bill Avg. tax bill
    Over $2.9M -$269,364 +$701,885
    $603K and up -$45,361 +$115,974
    $227K-$603K -$7,871 +$12
    $161K-$227K -$4,380 -$2,789
    $112K-$161K -$2,614 -$2,204
    $66K-$112K -$1,009 -$1,290
    $38K-$66K -$319 -$1,042
    $19K-$38K -$113 -$892
    Under $19K -$19 -$567

    As you can see, even if someone made 250k, their effective tax would increase by...$12.

    Oh NOEZ!

  4. Quote Originally Posted by Urban Monk View Post
    Have you thought this through in real terms?

    Maybe the accompany chart will help:

    Here's how the average tax bill could change in 2009 if either John McCain's or Barack Obama's tax proposals were fully in place.


    MCCAIN OBAMA
    Income Avg. tax bill Avg. tax bill
    Over $2.9M -$269,364 +$701,885
    $603K and up -$45,361 +$115,974
    $227K-$603K -$7,871 +$12
    $161K-$227K -$4,380 -$2,789
    $112K-$161K -$2,614 -$2,204
    $66K-$112K -$1,009 -$1,290
    $38K-$66K -$319 -$1,042
    $19K-$38K -$113 -$892
    Under $19K -$19 -$567

    As you can see, even if someone made 250k, their effective tax would increase by...$12.

    Oh NOEZ!
    Funny Obama always says 250k is the magic cutoff point, not 227. I understand your point of view, but the issue is not the tax increase, its the difference between someone making 226k and 228k in taxes. People already manipulate their income to avoid taxes. If you have a sharp difference between incomes, it will be easier to manipulate your taxes.

    Now that you deflected what I said, I think you can agree that many Americans will try to avoid paying taxes as much as possible. I do. I do whatever I can within the confines of the law to pay as little as possible to Uncle Sam.

    That being said, back to the original question, how does Obama's plan work if people manipulate their income and he doesn't bring in enough revenue.

  5. Quote Originally Posted by Urban Monk View Post
    Have you thought this through in real terms?

    Maybe the accompany chart will help:

    Here's how the average tax bill could change in 2009 if either John McCain's or Barack Obama's tax proposals were fully in place.


    MCCAIN OBAMA
    Income Avg. tax bill Avg. tax bill
    Over $2.9M -$269,364 +$701,885
    $603K and up -$45,361 +$115,974
    $227K-$603K -$7,871 +$12
    $161K-$227K -$4,380 -$2,789
    $112K-$161K -$2,614 -$2,204
    $66K-$112K -$1,009 -$1,290
    $38K-$66K -$319 -$1,042
    $19K-$38K -$113 -$892
    Under $19K -$19 -$567

    As you can see, even if someone made 250k, their effective tax would increase by...$12.

    Oh NOEZ!
    Did you make that up yourself, or did you have help?

    Really, this has no more substance than any of the other "ZOMGZ SKEERY GUY!!!1" stuff thrown from the monkey pit so far.
    •   
       


  6. Rob, you raise an interesting set of questions:

    - I really don't see anybody trying to LOWER their income in anticipation of an Obama tax plan - shifting income to non-taxable forms, yes; looking for non-cash bennies and perks to "make up the difference", yes.

    - Speculation on small-business taxes seems to assume gross receipts, rather than adjusted revenue; personally, I think that's a huge leap - a bridge too far, if you will.

    - Big business is in the business of getting around ANY LEVEL of taxation; we could call it the Prime Directive of corporate business: deflect all costs away from the company. OF COURSE they have plans - most of them do not pay the "exorbitant" US corporate taxes in full measure NOW - and will never do so in the future if they can avoid it.

    - DEBT WILL INCREASE AND THINGS WILL GET WORSE no matter who's in the White House, no matter who controls Congress. It's far too late to keep these chickens from the roost.

  7. Quote Originally Posted by Rugger View Post
    I just don't understand how Obama thinks increasing taxes on the 1% who own 90% of the wealth will stimulate growth. People don't invest and spend more when they earn less. Pretty simple.
    I understand that you don't understand it. The explanation is in your first sentence: "the 1% who own 90% of the wealth."

    Whether those percents are accurate or not, it's a true thing that since Reagan won in '80, the wealth-distribution has shifted dramatically in this country, with the bulk of the wealth becoming concentrated into an ever-shrinking number of ultra-wealthy families.

    I no longer have my texts from the period, but historically, too much wealth concentrated in too few hands has a destablizing effect on any society. Extreme concentrations such as we're talking about now reduce the poor to peonage, reduce the middle-class to the level of the working class, and in doing so create a very feudal style of social stratification - and the equivalency between wealth and power that has fueled revolutions through out the world for centuries.

    Look around for books by Dr. Ravi Batra - there's a lot to disagree with about his framework & his conclusions, but a lot of the basic research data is sound.

    When all wealth is in the hands of the very rich, then all prosperity must flow from the largesse of the very rich; in such a situation, there are really only 2 long-term responses: coddle the lords & ladies and obey them, or topple them & open up the game to others. We fought a revolution ourselves involving these same principles (among others).

    Whatever your politics or economic zone, it's a serious consideration.

  8. Quote Originally Posted by RobInKuwait View Post
    I'm writing this thread because I actually want to hear if any Obama supporter has thought about how he is going to address what I see as one of the fundamental problem with his tax plan. I'm not interested in discussing the merits of a taxing the rich strategy (everyone who has read my posts knows I disagree with the plan). I'm really interested in hearing about what Obama's plan will mean in real terms, and whether it will have unintended consequences, similar to the ones I predict below.

    Kruger mentioned in one of his posts that he thought what would happen under Obama is that Wall Street and the private sector will just look for ways to get around his ungodly high taxes. It got me thinking.

    This is what I think will happen:

    -Anyone making under $300,000 but over $250,000 will ask their employer to lower their salary to $249,000 as after taxes it will probably be around the same number.

    -Anyone making significantly more money than $249,000 will probably look into getting a portion of their income in stock options, benefits, and other forms of compensation to skirt around taxes.

    -Small businesses will almost uniformly make $249,000 a year, while reinvesting the rest into the business and in tax write offs. Thats just good business.

    -I'm sure big business will have similar strategies as well.

    What this will cause:

    -Obama is counting on using the current situation for his tax plan to succeed, even though I think there will be a significant dip in over 250k income after his plan is implemented.

    -This means that there will be further revenue shortages. Debt will increase. We will be in worse shape.

    Any comments?
    I think you are misunderstanding tax law. A persons tax bracket and their effective tax rate are two different things. I believe what Barack intends to do is keep taxes for the first 250K the same, but then raise afterwards. So the first 250K you get with say a 35% tax, and then from 250,001+ you will be taxed at 39%.

    The first 25K or is taxed at one rate, then the next 15K at another rate etc.

    http://money.howstuffworks.com/perso...-brackets1.htm

    [nomedia="http://www.youtube.com/watch?v=ElPBxiVxVEw"]YouTube - Broadcast Yourself.[/nomedia]


    I am not really a Barack fan, but his position on this is not terrible. I would prefer tax and spend versus tax cut and spend. I would much rather prefer a person who would cut spending and taxes, but that seems to be a dream.

  9. Quote Originally Posted by BodyWizard View Post
    I understand that you don't understand it. The explanation is in your first sentence: "the 1% who own 90% of the wealth."

    Whether those percents are accurate or not, it's a true thing that since Reagan won in '80, the wealth-distribution has shifted dramatically in this country, with the bulk of the wealth becoming concentrated into an ever-shrinking number of ultra-wealthy families.

    I no longer have my texts from the period, but historically, too much wealth concentrated in too few hands has a destablizing effect on any society. Extreme concentrations such as we're talking about now reduce the poor to peonage, reduce the middle-class to the level of the working class, and in doing so create a very feudal style of social stratification - and the equivalency between wealth and power that has fueled revolutions through out the world for centuries.

    Look around for books by Dr. Ravi Batra - there's a lot to disagree with about his framework & his conclusions, but a lot of the basic research data is sound.

    When all wealth is in the hands of the very rich, then all prosperity must flow from the largesse of the very rich; in such a situation, there are really only 2 long-term responses: coddle the lords & ladies and obey them, or topple them & open up the game to others. We fought a revolution ourselves involving these same principles (among others).

    Whatever your politics or economic zone, it's a serious consideration.
    !

  10. Quote Originally Posted by BodyWizard View Post
    Whether those percents are accurate or not, it's a true thing that since Reagan won in '80, the wealth-distribution has shifted dramatically in this country, with the bulk of the wealth becoming concentrated into an ever-shrinking number of ultra-wealthy families.
    Do you have any statistical evidence of this you can point to? Not disagreeing, just would like to see it. Its one of those talking points that is easy to make, but I haven't seen evidence of.

  11. It first came to my attention via the previously-mentioned Dr. Batra, who was tracking shifts in wealth-concentration since the Depression, & comparing those shifts w/ shifts in previous periods. Can't recall the names of his books, though - sorry!

    I'm currently trying to plow my way through a bunch of statistical reports (when I'm not trying to earn a living) in an effort to gain more up-to-date info; however, I do from time to time run across references to the shift having accelerated since the 80s, but no data I can confidently point to @ this moment.

    I do recall one thing from Batra: that as of the mid 80s, we'd passed the concentration of wealth extant @ the time of the '29 crash - and he thought this was a big ol' alarm bell.

  12. One statistic I did see and remember is that the poor (forget the income levels) actually has stayed the same in the last 30 years and the middle class has shrunk with the majority moving to a more upper class.

    So its actually opposite what most think....I forget where I read it but stuck in my mind.
    For answers to board issues, read the Suggestion and News forum at the bottom of the main page.

  13. Quote Originally Posted by Kruger View Post
    One statistic I did see and remember is that the poor (forget the income levels) actually has stayed the same in the last 30 years and the middle class has shrunk with the majority moving to a more upper class.

    So its actually opposite what most think....I forget where I read it but stuck in my mind.
    Bifurcation of the Middle Class! I have seen this as well; as you said, there is a divergence of the upper-middle class to the 'elite status', and a subsumption of the 'middle class' into the 'working poor'. Slowly, but surely, the Middle Class is ceasing to exist.

  14. Is that really true is or is more that the details of what makes up the "standard of living" for a middle class family has gone up faster than middle class income? What I mean are things like size of house, cellphones, cable tv, cars, etc. When I look at it, thats what I tend to see. I look at what people had in 1970 as a middle class family and it seems that more of the gap seems from higher expectation of material objects.

  15. Quote Originally Posted by Kruger View Post
    One statistic I did see and remember is that the poor (forget the income levels) actually has stayed the same in the last 30 years and the middle class has shrunk with the majority moving to a more upper class.

    So its actually opposite what most think....I forget where I read it but stuck in my mind.
    Does anyone else think its no coincidence that this chart correlates with the last thirty years and the lack of class mobility?

    I think welfare programs have engendered feelings of helplessness in the poor and made class mobility that much more difficult due to the easier alternatives to working in poor areas.


  16. Quote Originally Posted by RobInKuwait View Post
    Does anyone else think its no coincidence that this chart correlates with the last thirty years and the lack of class mobility?

    I think welfare programs have engendered feelings of helplessness in the poor and made class mobility that much more difficult due to the easier alternatives to working in poor areas.

    The graphs don't coincide, yet both show that we are currently back to pre 1970 levels.

  17. Quote Originally Posted by EasyEJL View Post
    Is that really true is or is more that the details of what makes up the "standard of living" for a middle class family has gone up faster than middle class income? What I mean are things like size of house, cellphones, cable tv, cars, etc. When I look at it, thats what I tend to see. I look at what people had in 1970 as a middle class family and it seems that more of the gap seems from higher expectation of material objects.
    Two factors:

    a) The rate at which conspicuous and competitive consumption occurs have raised exponentially - that is, people consuming retail goods in order to aspire to a certain ideal maintained in popular culture (as you said).

    b) Real Wage increases ceased in the 1970s, and there is a now a disproportionate relationship between value and purchasing power.

    In objective terms, though, the disproportionality between highest 10% and lowest 10% wage classes are due to the bifurcation of the Middle Class.

  18. Quote Originally Posted by mmorpheuss View Post
    The graphs don't coincide, yet both show that we are currently back to pre 1970 levels.
    Yes, but the damage was already done. I read that welfare helped destroy the nuclear family in urban areas due to the fact that benefits were often tied to being single mothers.

    I'd say the best way to ensure the poor stay poor is engender an attitude that if you're a single mother, you will get paid for your troubles. Culture hasn't changed in many urban areas. I see it in Baltimore all the time. 40 year old grandmothers are not a good thing.

  19. Mullet, do you think "progressive" tax plans like Obama's will help or hurt or not effect this class bifurcation?

  20. Quote Originally Posted by RobInKuwait View Post
    Mullet, do you think "progressive" tax plans like Obama's will help or hurt or not effect this class bifurcation?
    Honestly, hurt: Obama's temporary fix will only exacerbate the issue for future generations; just as Clinton's Bills have caused this one.

    As inept as W. is, this financial crisis is nowhere near his fault, nor the fault of the Republican congress over the past eight years.

  21. Personally i think everyone is jumping the gun on this. Every election talks about tax reform yet very few actaully move on the issue or if they try they aren't particulary successful. The executive powers do have limitations (regardless of what Bush has or hasn't done). Obama will still have to deal with congress on the issue as well as the courts and ultimately the people/business'. There are so many issues that will confront him i.e the war in Iraq, Afganistan, the push for healthcare reform etc that he will be lucky if tax reform actually makes it to the table much less has the effects he wants or is campaigning on. just review any of the last 1/2 dozen elected executives and reciew their pre-election platforms vs what they actaully did while in office I beleive the issue is actaully moot.

  22. Quote Originally Posted by glg View Post
    Personally i think everyone is jumping the gun on this. Every election talks about tax reform yet very few actaully move on the issue or if they try they aren't particulary successful. The executive powers do have limitations (regardless of what Bush has or hasn't done). Obama will still have to deal with congress on the issue as well as the courts and ultimately the people/business'. There are so many issues that will confront him i.e the war in Iraq, Afganistan, the push for healthcare reform etc that he will be lucky if tax reform actually makes it to the table much less has the effects he wants or is campaigning on. just review any of the last 1/2 dozen elected executives and reciew their pre-election platforms vs what they actaully did while in office I beleive the issue is actaully moot.
    I agree to a certain point, however: Clinton's policies had a large impact on the current crisis. That being said, he did much more good than harm.

  23. Quote Originally Posted by glg View Post
    Personally i think everyone is jumping the gun on this. Every election talks about tax reform yet very few actaully move on the issue or if they try they aren't particulary successful. The executive powers do have limitations (regardless of what Bush has or hasn't done). Obama will still have to deal with congress on the issue as well as the courts and ultimately the people/business'. There are so many issues that will confront him i.e the war in Iraq, Afganistan, the push for healthcare reform etc that he will be lucky if tax reform actually makes it to the table much less has the effects he wants or is campaigning on. just review any of the last 1/2 dozen elected executives and reciew their pre-election platforms vs what they actaully did while in office I beleive the issue is actaully moot.
    Do you really think a democratic house and senate will be obstacles to Obama's tax plan?

  24. Quote Originally Posted by Mulletsoldier View Post
    That being said, he did much more good than harm.
    In what respect?

  25. The other point I would put out there is that any economis policy has a large degree of lag time. What is stared under one administration becomes the issue of the next. it is very difficult to change course of such a large ship no matter what the reson 9think about the Titanic). there really isn't such a thing as a quick fix. consider how long it took FDR's programs to really shift the economy even with the public support...some would argue that it really took a war to swing things and then we had a recession afterwards.
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