Friday, March 20, 2009

Obama's Dilemma

This short piece is from the National center for Policy Analysis. Their free e-newsletter summarizes 5-6 interesting economic and health care articles daily. It's a great way to keep up, and a quick read. They are a free-market think tank.


President Obama faces a dilemma: to pay for his plans and get the deficit down to manageable levels, he would return top tax rates to where they were before the Bush tax cuts, extract more from the rich by capping their deductions, increase taxes on corporations and auction carbon-emission permits. At the same time, he promises permanent tax cuts for 95 percent of workers. President Obama's plan begins to fall apart under economic analysis, says the Economist.

President Obama's budget forecasts that the economy will shrink 1.2 percent this year then grow by an average of 4 percent over the following four years. These predictions may be exaggerated, explains the Economist:

The unprecedented damage to household balance sheets during the economic recession could well result in anemic economic growth for years, significantly undermining the president's revenue projections.

President Obama may either have to renege on his promise to slash the deficit to 3 percent of gross domestic product (GDP) in 2013 from more than 12 percent now, or rein in his spending promises or raise taxes more.

President Obama's scattershot tax increases are a poor substitute for the wholesale reform America's Byzantine tax code needs, says the Economist:

Limiting high earners' deductions for mortgage interest, local-government taxes and other things is certainly more efficient than raising their marginal tax rates even more, but it would be better to replace such deductions for everyone with targeted credits, abolish the alternative minimum tax, and implement a broad sales tax.

President Obama could simultaneously raise more revenue and make the tax code simpler and more conducive to growth; he is only asking the richest 2 percent of Americans to pay more taxes, building his change on shaky foundation.

Bush's tax cuts raised the proportion of American families that pay no federal income tax (or are net recipients of tax credits) from 33 percent to 38 percent; President Obama's will raise it to 44 percent, according to the Tax Policy Center, a research group.

Although many of these people pay payroll taxes, President Obama is also intent on reducing the link between payroll taxes and the pension and health-care benefits they were supposedly designed to pay for. It certainly makes sense to keep poor people off the income-tax rolls, but removing a sizeable chunk of the middle class weakens the political bond between taxpayer and government, and will lead to pressure for more such spending, says the Economist.

Source: Editorial, "Wishful and Dangerous Thinking," The Economist, March 7th, 2009.

For text:

For more on Taxes:


  1. President Obama is starting to unravel due to his inexperience to hold such a high position in our government. But he has a nice smile and was able to promise changes to all that would listen with a wishful heart. Well folks if you enjoy the government climbing up your dimly lite passage then embrace those changes. For my part I am very worried where we are now headed as it appears to be a collison course against a brick wall. But not to worry, the Democratic idiots in D.C. will, just before impact, smile at us middle income residents and promise that the wall is made out of "soft" bricks so not to worry!

    God Bless America,

    David L. Rogers

  2. One of the FIRST places messiah obama will try to cut back is the Veterans/ soldiers/ military!
    Mark my word! Just like his sister, Bill Clinton.

    Tom S

  3. I'm glad to see The Economist writing some sense about Obama's budget as this is a well respected magazine and should make even some liberal supporters take note. My sense is that BO never intended to only tax the rich. They are but a pawn in his Alinsky manual of radical activism and once they are sufficiently smacked down, he will move onto the middle class. He can still maintain popular support by keeping 50% of taxpayers off the tax rolls. With no skin in the game, that group will have no incentive to curb government spending and BO's socialist agenda can be instituted.

  4. May you be blessed for your service and courage.

  5. First thank you for protecting our nation. Now we have the antichrist in charge and he wants to be king of the world.I am sure that 98% of the congress would not be able to take up arms as their BIG mouths are their only weapon. We better prey that there are still those amongst us who can shoot stright and keep these idiots in line.Pray for all grandchildern