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  • Morning Bell: The Tax Man Cometh

    Benjamin Franklin wrote in 1789, “In this world nothing can be said to be certain, except death and taxes.” But although the outcome is always the same when the grim reaper visits, the punishment the tax man inflicts can vary widely. Since the early 1980s — after Americans rejected Jimmy Carter and embraced Ronald Reagan and his tax cuts — the United States has benefited from relatively competitive tax rates. But if Sen. Barack Obama’s tax plan becomes law, the IRS will become one of the most punitive tax men in the world.

    Obama’s Plan

    Obama’s tax plan has two major components. First, he promises to end the Bush tax cuts, allowing the top two tax rates to return to 36 percent and 39.6 percent. Second, he promises to end the Social Security payroll tax cap for incomes above $250,000. Individuals making more than $250,000, therefore, would face a 15.65 percent tax rate from payroll taxes in addition to a top income tax rate of 39.6 percent for a combined tax rate topping 56 percent. Individuals living in cities or states with high taxes such as New York City or California would have tax rates approaching 70 percent, levels not seen since Carter was president.

    Tax Avoidance

    Back when the top marginal tax rate was near 70 percent under Carter, tax shelters and tax avoidance were common among top income earners. These gimmicks reduce investment and economic growth. Some individuals will attempt to transfer their compensation from wages to capital gains since capital gains would be taxed at 25 percent. Others might waste try to incorporate so they could pay business taxes instead of income taxes. All of these schemes divert resources from wealth creation to lawyers and accountants who implement the schemes.

    Income Flight

    High tax rates also encourage the flight of capital and income to lower-taxed overseas destinations. Visiting Britain recently, French President Nicols Sarkozy remarked that France’s high taxes had driven so many French to London that it had become the seventh-largest French city. Obama-sized tax rates would drive many creative Americans to Canada and London as well.

    Unemployment

    Currently only six of the top 30 industrial nations have combined local and national tax rates above 55 percent. The average unemployment rate rate for those countries is 7.35 percent. Under Obama’s plan, the top marginal tax rate would exceed 60 percent, which means only Hungary would have a more punitive tax rate. Hungary’s 2006 unemployment rate was 7.5 percent.

    Quick Hits:

    Posted in Ongoing Priorities [slideshow_deploy]

    8 Responses to Morning Bell: The Tax Man Cometh

    1. rock the benz red says:

      I don't see how any one in their right mind could vote for this Obama character!!

    2. Middle-Class, USA says:

      Are you rich Or are you a hard working middle class American, like me?!?

      'Overall, the Tax Policy Center said people with very high incomes would benefit the most under McCain's proposal, while low- and middle-income taxpayers would see larger tax breaks under Obama's plan'

      Associated Press:
      http://news.yahoo.com/s/ap/20080617/ap_on_el_pr/c

    3. Bob Wilis, Middlebu says:

      Americans, please wake up and smell the coffee!!! If obama gets in we are doomed. He says he will raise taxes, I believe him. Not only are we having to suffer with higher fuel costs but higher taxation will possibly put us under. Quite frankly I haven't been working and trying to save for my senior years to have someone like him come along and take it away. My daddy told me that where there's smoke, there's fire and this guy has had a lot of smoke around him. I hope and pray that there are enough sensible people out there to stop this guy.

    4. Cindy, Gulfport MS says:

      I see today's true conservatives in the same situation as our forefathers who fought and won our independence so many years ago. We need to unite and take our country back, ESPECIALLY if Obama is elected!

    5. Wes Thompson says:

      What is it that people like in Obama's proposals. Raise taxes for everyone. Deal with the terrosist nations. Attack Israel I hear. Free health plan for illegals. We can't even get free health. What do you pay for healthcare? He has the young convinced that we need a change (from what we have to anything),

    6. Paul Provenzano Bal says:

      Why doesn't everyone just wake up and push for the fair tax. Also known as a consumption tax,if everyone stopped watching American Idol and decided to learn something,us as a nation would be much better off! Read the book!

    7. Pingback: Hope + Change = 70% Tax Rate « Evynn’s Weblog

    8. DoubleM says:

      Hey Middle-Class

      That great tax cut Obama will give you doesn't do you a hell of a lot of good when your un-employed.

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