Senator Obama has frequently assured us that 95% of the people in this country would receive no tax increase under his tax policy. Only the top 5%, those persons, families and businesses making over $250,000 would see their taxes raised. This claim is a little misleading for a couple of reasons:
1. By raising taxes on business he will give businesses a big incentive to either reduce benefits, reduce wages, lay off employees, move offshore, and/or pass the added cost onto the consumer. In any case, the average person is going to wind up paying the tax increase in one way or another whoever Obama imposes it upon.
2. The Democrats plan to let the Bush tax cuts expire in 2010 which means that everyone's taxes will go up automatically. Obama has said that he would keep the lower rates for the middle class in place, but it remains to be seen whether a Democrat congress would agree to this. This also means that the upper income earners and businesses will get hit by another tax increase right after the first one. Obama also wants to raise the capital gains tax. The cumulative effect of these increases will be crushing and although they will not immediately impact those making less than $250,000 the middle class will soon enough be faced with all the consequences noted in #1.
3. In addition, the Democrats are planning to do away with 401k plans and place them in a government run account at 3% interest funded by the sale of government bonds. This would increase the tax liability on everyone's income (if they had a 401k), including employers who had previously contributed to the plan and received a tax break for so doing, and reduce the amount the contributions would have earned over the long term if these accounts had stayed in the market. It will also depress the market even further when the funds are removed.
4. 40% of American filers currently pay no taxes but under Obama's plan they will get a "refund" anyway. These people will essentially get a check from the government paid for by those who do pay taxes. It's essentially welfare. It's one way to "spread the wealth around," I guess.
There's more on what's in store for us after Inauguration Day here, here and here.
I've heard a number of commentators attribute the current bear market, which seems to puzzle many experts, to investors' fears about what Obama and his fellow Democrats will do to the economy once they ascend to power. Maybe they're on to something.
RLC