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Tuesday, October 14, 2008

How to Counter Obama’s Tax Plan

Barack Obama proposed a tax plan on Monday, which he said would result in 95% of Americans receiving a tax cut, and 5% having to pay more.

Although such a plan would go well with voters, the reality of the situation is that his plan does not constitute a tax cut of any kind. Rather, his plan would give a tax credit to 95% of Americans. First everyone would have to pay taxes, after that the government would (give some of) it back.

The above gives room enough for criticism from fiscal conservatives, but there's more; not only would the government give (some) money back, it would actively redistribute wealth. 33% of Americans do not pay taxes, yet they will receive the so-called 'tax credit.' If you do not pay taxes, yet receive the tax credit, you receive welfare pure and simple.

Which gives John McCain the room he needs to offer an alternative plan, with great appeal to middle and high income households.

The first thing McCain should propose is to make the Bush tax cuts permanent. He has already done so, of course, but he needs to talk about it more regularly. He needs to explain to voters why these tax cuts do not merely benefit the rich, but the rest of the country as well.

Bush's tax cuts help the rest of the country because they allow higher income households to spend more. These individuals have enough money to go around. They do not need the money to pay off debts, or to put it on a savings account for times of trouble. Rather, when they have more money, they spend it. They consume. The more they consume, and thus the more demand goes up, the more companies have to produce. When production goes up, more jobs are created. This is the theory, and it worked rather well as economic statistics showed in recent years.

Continue reading this post at PoliGazette.