Tags: dan | mangru | obama | math

Obama's Math Just Doesn't Add Up

Thursday, 11 Sep 2008 09:40 AM

It seems that every time I turn on any of the cable news networks that media darling Barack Obama is touting his plan to roll back the tax cuts given to the rich to pay for programs for the poor.

A little too Robin Hood for my taste, but it makes sense. Or does it?

Logic suggests that if Obama takes away the Bush tax cuts for the rich he could theoretically take that revenue (about $50 billion in each of the next two years) and use it to pay for government-sponsored, universal healthcare, larger entitlement spending, and a whole host of his proposed social programs.

Sounds good, right?

But stop right there.

What Obama isn't telling us is that the Bush tax cuts expire in 2010, and that all of the proceeds from taxing the rich are already figured into Office of Management and Budget's long-term spending and deficit forecasts.

That means that, even with the expiration of the tax cuts, we still face budget deficits and a growing national debt.

All of that doesn't include Obama's proposed $800 billion in new spending over the next four years.

So how is he going to pay for $800 billion in new spending, in addition to the projected deficit spending, in order to balance the budget?

One might say "raise taxes," an Obama mantra.

According to the Congressional Budget Office, just to pay for current programs (Social Security, Medicare, and Medicaid, among others), the federal government would have to almost double all tax rates over the next four decades.

That means that under Obama's spending plan, low-income families who do pay taxes would pay almost 20 percent in federal taxes instead of today's 10 percent rate. The middle class, the group Obama claims to provide the most tax relief to, would have to pay closer to 50 percent as opposed to the middle-class tax rate now of 25 percent.

Keep in mind all of this is without considering a single red cent of Obama's new spending proposals.

It doesn't take an economic genius to figure out that a middle-class tax rate of almost 50 percent is not feasible.

At some point the tax base must widen to cover the cost of these programs or spending must be cut.

So how will Obama and the Democrats pay for existing programs while adding billions in new ones?

The answer is very simple, "fuzzy math."

What Obama is assuming is that a Democrat-controlled Congress will pass the Bush tax cuts in 2010, and then immediately repeal them, creating new revenue.

Doesn't make sense?

Well, it shouldn't. This type of fuzzy math leads hedge funds to collapse, the mortgage industry to crumble, and we should be certain that the same will be true of our government.

As Washington is figuring out new ways to hold mortgage brokers and hedge funds accountable, Democrats should look at themselves as they promote these illogical, harebrained financing schemes through their anointed presidential candidate, Barack Obama.

In all fairness, the Bush tax cuts, while expanding the tax base, have only paid for at best 40 percent of the revenue that it has lost, according to a new paper by Robert Carroll to be published this fall in the National Tax Journal.

Therefore, to extend the Bush tax cuts, as advocated by many conservatives and pro-growth groups, Washington would need to roll up its sleeves and make serious budget cuts that narrow the deficit.

But the next time you hear Barack Obama say that he's going to tax the rich and give tax breaks to the poor and middle class, ask yourself, how's he going to pay for it?

As many investors and Americans have learned through the collapse of the housing bubble, you shouldn't buy what you can't pay for.

It's a very simple lesson with very rewarding benefits.

When we have been fiscally conservative, America has seen times of unparalleled growth. When we have been fiscally irresponsible, we have seen the Great Depression, the stagflation of the '70s, the savings and loan crisis of the late '80s, the late '90s early 2000s dot-com bust, and now our housing bubble.

So Barack Obama, instead of promoting new spending plans using fuzzy math, one that Americans can't pay for, should promote fiscal responsibility, a balanced budget, and honest government accounting.

Now that's change I can believe in.

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DanMangru
It seems that every time I turn on any of the cable news networks that media darling Barack Obama is touting his plan to roll back the tax cuts given to the rich to pay for programs for the poor.A little too Robin Hood for my taste, but it makes sense. Or does it?Logic...
dan,mangru,obama,math
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2008-40-11
 

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