Tuesday, July 28, 2009

What to worry about with Obama's ambitious plans

It is reasonable to support the Obama administration intentions and be completely frightened by the possible results.

We know that about one third of Americans pay no tax, with the exception of the large,strange, and completely antiquated social security tax on any income. We know that including social security more than one third of Americans receive some form of transfer payments from the government.

Obama plans and local government plans to increase tax revenues are a mite bit troubling. They focus on what might be called the upper middle class, not rich but done well. There has been a massive amount of wealth created in this country for lucky or smart individuals that will, practically speaking, be unaffected by what Obama does. If you have 20 million dollars in liquid securities or a family legacy bound up in pre-90's law trusts, there's little to worry about as always. Some extra costs may hurt the pride but not the day to day.

What Obama is proposing will not hurt the rich in any material way, but may go some distance to destroying the great pride of America, a vibrant middle class.

This is hypothetical. Take a look a the New York city area. While the numbers may stagger those elsewhere, with a family of four an income of $250,000 with both parent's working is just about necessary to have a middle class existence in a safe area with decent schools. On that income Obama is now proposing federal taxes in the mid to high-30% area, New York State is now raising state income taxes to over 9%, and the sales tax is around 8.5%. On top of that property taxes are off the charts, probably on average over $15,000 for the hypothetical family mentioned, and the federal benefit of these property taxes on Schedule A of the tax return are almost completely eliminated by the AMT(Alternative Minimum Tax). Add this all up and you get an effective tax rate at around 55% to 60%.

Try getting need based scholarships to offset $45,000 of annual college tuition costs per child on this supposed income---not possible, this hypothetical familiy is deemed wealthy.

The strength of the USA was built on a growing middle class in the 1950's, much of which was based on an industrial economy. With that industrial economy now less than 15% of GDP, and diminished by health benefit reductions and the demise of defined benefit plans, the service economy middle class needs attention and respect. The Obama proposals are laudable in their intention, but could or will bring further destruction to a pressured middle class. That, of course, would lead to an overwhelming Democratic bias of transfer payment receivers in the electorate, a cynical observation. His politics are Chicago bred. His intentions are just great. There are so many people living with hardly subsistence income that his programs are designed to help. This is a tough equation to deal with, however, and balancing the economy in the most effective way is not easy.

It's so sad that most opposition to some of the Democratic tax plans is so Fox news based, focused on fake "values" issues and on preserving every tax break and benefit for the extraordinarily rich people that this country's productive system has produced.


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