The following video is an exchange between Sen. Barack Obama and a plumber who asked him to explain his tax proposal during a meet and greet. The plumber is preparing to buy a plumbing company with an annual revenue above $250,000 and wanted to know if his taxes were going to go up. Obama is surprisingly honest with the man telling him that not only would his taxes would go up under an Obama administration, but also that he would be bearing a larger tax burden in order to better "spread the wealth around."
This is a blatant statement of socialism coming straight from Sen. Obama himself. Obama's tax increases aren't just aimed at the wealthiest of the wealthy, but will hurt blue collar and middle class business owners like the plumber in this video. When we hear Obama speaking about a "slight" tax increase on those making $250,000 or more, we immediately think that this will only affect wealthy CEOs - the people who have the money to throw around. The problem is that Obama neglects to inform us of the laws that govern business formation. Most small to medium sized businesses businesses, like the plumbing company that the man in the video is preparing to buy, are structured under the tax laws in such a way as to receive what is known as "pass through taxation." "Pass through taxation" essentially means that all the businesses' earnings are attributed to the owners of the business as income, which is taxed at whatever rate corresponds to the owner's tax bracket. This is a different structure than that which applies to corporate earnings. Under the corporate structure (did somebody say wealthy CEOs?), business earnings are subject to double taxation - once at the entity level and then when the earnings are distributed among the shareholders and employees (the individual level). It is likely that this plumber will be running his newly purchased company as a sole proprietorship and, as a result, will be shot into the highest income tax bracket.
While I am on the subject of income tax brackets, Sen. Obama also told the plumber that "the folks who make more than $250,000 will be taxed at a 39% instead of a 36% rate." Currently, the highest tax bracket in our code is 35%. Sen. Obama is not only proposing adding new small business owners to the highest tax bracket, but is also proposing increasing the percentage of the income that is taken from those who fall under this tax bracket. Under the current tax code, a single individual must make $357,000+ in order to fall into the highest (currently 35%) tax bracket. According to what Sen. Obama is saying in this video, the minimum amount of annual income required to be included in the highest tax bracket would decrease to $250,000 (a difference of $107,000), while the amount of tax liability of those in this bracket would increase to 39% (a 4% change).
One final juicy bit of information. The plumber asked Obama if he would be open to a flat tax, which Obama said that he would, but that it is not feasible. Sen. Obama stated that the government would have to impose a 40% sales tax in order to make up the revenue. Here's the problem - the plan that Obama described was the fair tax and not the flat tax. A fair tax would replace the current federal income tax system with a nationwide sales tax, which is regressive and generally not favored. Under a flat tax, however, all income would be taxed at a single, low rate. A flat tax system would also get rid of the various deductions and loopholes that have led to corruption in the administration of the income tax. The only exception would be a generous personal exemption that would be available to every American and would result in the first $40,000 of income for a family of four being exempt from any tax. The proposal is based on an economic model known as the Laffer Curve, which shows that when government enacts tax cuts, revenues to the government actually increase. Back in March of 2006, Dick Armey, the former House Majority Leader who also happens to hold a Ph.D. in economics, testified before Congress on the wisdom of the flat tax proposal. You can read the full text of Leader Armey's testimony here.
At a time of economic crisis brought on by government mismanagement of the economy, the last thing that we need is Sen. Obama's plan to increase government intervention and redistribute wealth.
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6 comments:
Mr. Brown, I think this is a great post. I think this is an important question that people SHOULD be talking.
Taxes have a strange affect on people, the lengths that people will go to, to get something “tax free” is amazing. While you talk about HIGHER TAXES, a 4% difference on $107,000 is only $4280, or rather $356.6 per month. If you are making $357,000 per year and you can not spare $4,280 then I think you are in bigger trouble than your taxes.
People see Taxes as “the government steeling my hard earned money”, while this is very true in many 3rd world countries it is not the case here. We (as Americans) have great schools, roads, policemen, firemen, etc. What Sen. Obama should have explained to the Plumber is someone in foreclosure is not going to hire a plumber, someone who can not pay their medical bills will not renovate their bathroom, someone who has lost their job can not afford to hire a plumber. So yes I will be taking a little more from you PROFITS, but I will be putting it back into your community and helping the people around you to make more money so they can pay for fancy new plumbing. He should have asked the Plumber if he had seen a decrease in new customers in the last year, and how much that had cost him. If he had seen a greater decrease the 4% then the Obama plan would potentially help him more!
As far as small business owners having to pay their company tax, you know as well I do, that there are so many tax-write-offs for these people, company phone, car, trips, lunches, etc. that they can run their business under the $250,000 per year income and still have a great life style.
Had our economy being doing well, like it was in 2000. then I would be very pro small government, if our unemployment was low (suggesting that there were jobs for anyone who wanted one) I would be saying lets pay NO taxes at all. But, right now we need community, we (as a people) need to help each other up, this is what makes America great and it the last best hope to fix a VERY broken situation. The important point is how the money is spent, it must be spent on our community’s and on the middle class, not on wars, researching how Alaska craps hump or the DNA of bears in MT.
On that note why did Palin admin pay for research on craps that would potentially help the gas companies? Why not make them pay for it themselves (isn’t that small government)? Why would McCain offer a government “cash price” (incentive) for the first car manufacture to get an eclectic Automobile on the road? Surly there is a market incentive and getting the government involved is just big government.
I am curious about one thing; how does McCain’s tax plan differ to that of the Bush administration?
He claimed that under his tax plan you would have saved money over the 15 years you've been working as a plumber because your employer would have been taxed more and you would have been tax less.
Obama is full of it!
The truth is, you wouldn't have save a penny under Obama's tax plan because you're employer would have passed the costs on to you and your customers in the form of reduced wages, reduced jobs, and higher prices.
In fact, the working class ultimately pays all taxes no matter where they are first applied. All his tax plan does is shift the burden from direct income taxes to indirect business taxes.
Obama needs to back to school and take a course in basic economics.
Fuzzy -
Much of your post is focused on communities helping each other. You are so close to an actual intellectual breakthrough that it is almost sad to see you completely miss the point. The system you get close to describing is the system of federalism - where the federal government stays out of the way of local communities on most matters except those that the Constitution grants it explicit power to act. You are correct in saying that the greatness of America comes from the people, communities, and businesses who come together to help one another. You are dead wrong to suggest that government is the answer.
Profit is the engine that runs businesses and runs communities. If you take more profit away, then companies employ less people because they simply do not have enough money to expand their business and provide greater benefits for their employees and communities. If Joe the Plumber is allowed to keep more of the money he makes, he will be able to expand his business. As his business expands because he has more resources with which to expand it, he will need to hire more workers. Guess where those workers come from? His community. Thus, the young high school kid or the guy who lost his job and is trying to survive on the meager government handouts he is getting will have an opportunity to learn the plumbing trade (I'm using the plumbing business as an illustration. Substitute whatever business you like). These individuals, as they become more and more skilled, will then have the opportunity to grow within the company and even go out and start their own business.
The federal government is too far removed from these local communities to be able to spur the kind of progress that the individuals and businesses within the communities can spur if simply allowed to be profitable. Remember when the government had the great idea of creating a system that would channel money toward home mortgages and force lenders to make loans to people who wouldn't qualify for home loans otherwise. That worked out great. Oh, shit. No it didn't.
We have a great public school system? You obviously haven't been paying attention to the state of public education in this country lately. It's in shambles because of excessive government control that awards mediocrity. You say we have great roads because of government. Ever driven through Arkansas? Remember that big government-funded tunnel in Boston that collapsed a few years back? Government did a helluva job there.
Government intervention is destroying the creative spirit that drives this country. Our economy is suffering because spending is out of control and government seeks to regulate everything it possibly can. More regulations will just make the problem worse. Yes, you put in safeguards to prevent abuses of the system, but you have to allow the PEOPLE to run their lives, not have the government run their lives for them.
You misunderstand the purpose of this blog. I am not promoting the ideas or candidacy of John McCain. I have several fundamental disagreements with the way that he would approach the economy (although his track record of fighting irresponsible government spending is a much needed reform). Yes, I will be voting for him, but I will be doing so because the alternative (Obama) would be a complete disaster for the economy and for freedom. The purpose of this blog is to promote the most basic and essential American ideal: liberty.
Look to history. The more government takes from the people, the more those who have the means to improve their communities find ways to hide their money from the government. The greater freedom that is allowed to exist in the marketplace, the more that same money will be cycled into the communities in the form of investment and new jobs. If there is less freedom in the marketplace, then there will be less capital flowing into communities that actually need it. Here's a simple illustration: under Obama's plan, Joe the plumber has ZERO incentive to try to make more than $250,000 per year because he knows that he will have to deal with a higher tax burden. Therefore, he will do less business and hire less workers because the greater his success, the more the government will take from him. He is, thus, incentivised to do less.
Take a little time to educate yourself beyond Barack Obama's talking points. Try "The Law" by Baistat, "Capitalism and Freedom" by Milton Friedman, and "The Road to Serfdom" by F.A. Hayek (Nobel Prize Winner).
Thank you for taking the time to explain to be what I have had the opportunity to see happen for the last 8 years. The reason I ask how McCains policies differ to that of Bushs, was not to try and say Bush is a bad guy. But to rather say maybe the times have changed. Maybe the concepts that we hold of lower tax = growth no longer hold in the 21st century.
I am absolutely behind small government, and Ironically if Obama can fix some of the issue he may not get my vote in 2012 for this very reason, but right now we have HUGE corporations earning billions and billions and no balancing factor. Like I mentioned in my 1st response why is a Republican (who should be small government) not making the free market do the research on the Bears in MT that would potentially remove them from the endangered list opening up land for development. Why would a governor impose Windfall Taxes on oil companies who hire her Husband and potentially your son-in-law, while funding the research of craps humping? These seem like the same Bushisms that we have put up with for the last 8 years and while the Party MAYBE pro small government these two clowns have done NOTHING to suggest that they are the fix. Infact I would go as far as to say that McCains ideas have be tried, tested and found to be lacking.
Obama has Mr Clinton on his side, the last man to balance the budget, that to me is a ray of hope, he has Warren Buffet on speed dial (and Warren has publicly agreed with Obama) that to me is well founded. Obama walks the streets and has been down and out in the last 8 years (almost in bankruptcy in 2000) he knows what its like to deal with Health insurance people, what its like to see people who cant afford gas, education or even a Plumber.
So while I agree with you once the middle class is strong enough to hold up the economy let the trickle down method system decide who gets the extra’s. BUT, when the engine that drives this economy is broken we need to directly interject to make sure that Joe the Plumb will have clients next year and that the middle class can afford to pay the huge credit card interests to the share holders of Wachovia.
I ask AGAIN how does McCain’s policies (with regard to tax) differ to that of the tried and tested Bush administration.
Lastly, the housing/credit crush has come from BOTH direction. Yes Clinton was pushing for more lending, but there has been reckless leading from people with the money. The way I look at it is the same way that Colorado regards landlord-tenant agreements: It is the Landlords responsibility to inform the tenant of their rights and restrictions, for the reason that the landlord is running a business and SHOULD be better informed than the Tenant. The landlord has chosen to rent out a property the tenant NEEDS some place to live. To relate it to lending, a poor family needs to buy a house, a lender CHOOSES to lend them the money. Who should know better, the lender who has a university degree is business or the home buy who workers on a construction site?
At this I say good day and remember
Red means Danger, Blue means HOPE
Fuzzy -
I am with you with regard to the bears in MT and the windfall profits tax. It's basically populism and an area where I have strong disagreements with some of the decisions made by Republicans. Spending is out of control and we are wasting a ton of money. That being said, McCain does have an impressive history of fighting government spending, which is an area where the Bush administration has seriously dropped the ball.
The credit crisis has actually been brewing since well before Clinton. I agree that it has come from both directions - irresponsible government policies and corruption between government officials and business leaders. While I am a huge propoenent of free markets, free markets cannot operate without accountability.
It seems the source of our disagreement is how to best inject money into the economy to start the engine again. Before the credit crisis hit, a report was issued concerning the economic stimulus package that had gone out earlier this year. That report showed that the tax refunds injected more money in the economy, which resulted in a sharp increase in GDP and better economic performance. If you turn a stimulus package into an across the board tax cut and couple it with spending reform, then you will see an extension of the jump in prosperity that resulted from the stimulus package. Think of a stimulus as a shock to the heart that brings it back in rhythm and a tax cut/spending reform package as the medicine that brings the patient back to full health.
Well This is where it gets interesting for me, the “jump start” you mention of helping the middle class has been in Obamas platform for the last 4 years, while McCain was voting with the Bush budget, while MCCain was voting for deregulation and voting for a VERY expensive war. Obama was talking very loudly against these items.
I keep asking this, cos I truly HOPE, is there a difference in McCains Economic strategy and Bush or is it Just McBush – spending.
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