Robin Hood Economics

Posted: Sep 04, 2008 12:31 PM
Robin Hood Economics

You have to give him credit; the Obama tax plan has a lot of appeal to the average voter. The sales pitch, repeatedly endlessly, is that under Obama 95% of Americans would see their taxes go down.

Of course, it’s not as simple as the Democratic candidate would like you to believe. Both the nature of the tax “cuts” Obama puts in place and the tax increases he is trying to sell could have serious impacts on future economic growth. Not to mention the ability of the American economy to get back on track building the number of jobs and growing wealth in this country.

John McCain’s tax plan is far from perfect, but at its core is reducing taxes on job creation and kick-starting the economy. The idea behind the plan is that a good job with a strong and growing business is a far better way to drive Americans’ incomes up than to distribute short-term government handouts, as the Obama plan does.

What is Obama offering? A witch’s brew of tax credits that are aimed at various groups rather than lower taxes for everybody. Obama pays for these tax cuts by increasing the capital gains tax, keeping America’s 2nd highest in the world corporate taxes, and whacking upper-income earners with dramatically higher taxes. All things aimed squarely at reducing economic growth.

Tax credits for some and raising taxes on the wealthy are standard fare for Democrats. Call it Robin Hood economics, which is based on the idea that the idea of wealth in America is fixed and the role of government is to make sure that it gets into the right hands.

Such a plan would make sense if the economy were built on stealing from the poor and giving to the rich; then Obama would be the Robin Hood figure who was simply setting things right by reversing the transaction.

But modern economies build their wealth through investment and job creation, and Obama’s tax plan is aimed squarely at reducing investment and punishing wealth creation. Obama’s tax increases to pay for his new programs amount to billions of dollars on investments.

John McCain’s economic plan is aims to reduce the immediate tax burden of millions of ordinary citizens through tax cuts such as increasing the per-child personal exemption. But it also stimulates the economy by reducing the costs of doing business in the United States. More investment at home means more jobs and higher incomes for Americans.

Not to mention that millions of Americans are counting on their investments to help fund their retirement plans in the coming years, and Obama’s plan takes a bite out of their future wealth.

As anyone who has thought about outsourcing knows, America could and should be a much better place to do business than it is. The United States could and should be much more competitive than it is because of our high taxes and complicated regulations.

That’s the true story behind McCain’s plans to reduce corporate tax rates and cut taxes on dividends. Believe it or not, the United States actually has higher corporate tax rates than almost any other country. McCain aims to cut those taxes to stimulate economic growth, and keep rates on capital gains low to encourage Americans to invest in the future.

Obama wants to increase the tax on capital gains, cutting the investments that drive our economy—and history shows that higher capital gains rates actually means less tax revenue for the government as people change their investment behavior. That slows economic growth by making America less attractive to do business in.

Obama’s plan banks on Americans not understanding the basic economics of tax policy. It assumes that Americans would be willing to trade a more robust economy under McCain’s plan for a shot at some tax credits they may or may not qualify for.

That’s a bad bet for Americans and may well be a bad bet for the Obama campaign. His witches’ brew of tax increases for some and tax credits for others add up to a substantial increase in taxes overall. Those “middle class” tax cuts might be paid for with fewer jobs for Americans.

That’s a pretty high price to pay for a shot at a few tax credits.