– Diana Furchtgott-Roth, a former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —
By Diana Furchtgott-Roth
Pity President-elect Barack Obama. Today, only three days after his historic victory as the first African-American elected president, the Labor Department announced that the economy lost 240,000 jobs from payrolls in October and that the unemployment rate rose to 6.5%. This underscores the difficulties he faces in raising taxes on “the rich” to fund new spending.
Obama must recognize that his campaign promises are impossible to implement without making the economy sicker. The economy is weak and getting weaker, probably contracting now at an annual rate of 3-4 percent.
Obama’s promises include a combination of tax cuts and welfare for 95 percent of working Americans, an end to America’s foreign oil dependence, a costly healthcare plan, more education spending, and so-called pay equity for women. Much of this is supposed to be funded by levies on businesses as well as tax increases on those making over $250,000.
But, according to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, Obama’s tax package would cost $2.9 trillion over the decade from 2009 to 2018. That includes increasing the tax rate on capital gains from 15 percent to 20 percent, and raising the top two tax rates, 33-36 percent and 35-39.6 percent, on singles with taxable income exceeding $165,000 and married couples earning over $201,000.
The Tax Policy Center’s estimates do not include the effects of financial market chaos and the stock market decline, which has reduced taxable income. And with the economy worsening, tax increases on upper income earners would net less than the Center projected, increasing the 10-year deficit to over $3 trillion.
Here’s one small example. In 2005, the latest data available, the Internal Revenue Service recorded 3.5 million returns with $200,000 or more. About half those returns had capital gains income, which averaged $304,000, netting approximately $80 billion in taxes annually.
These revenues will be reduced by weak stock markets—as well as by disincentives to invest stemming from higher taxes. In addition, many Americans are losing jobs, meaning not only less wage and salary income to be taxed but increased government payouts for unemployment benefits.
As president, Obama will have difficulty paying for new projects such as an incremental $65 billion health care plan, a $30 billion addition to the Medicare prescription drug plan, and $37 billion in increased education and research spending—all estimates for one year.
The bill for some other proposals would go to employers, who are already struggling to survive the recession. Investments in alternative energy and electric vehicles, for instance, would be funded by requiring purchases of permits to emit carbon, estimated to raise $56 billion annually.
Obama would also require most employers to offer paid sick and maternity leave, vacation, and parental leave for school visits. Employers would be penalized for paying women less than men for “equivalent” jobs, however they are defined.
Of course, in a recession, federal deficits are desirable. The question is how to structure them to help the economy recover. By increasing taxes on upper-income earners, small businesses, and capital gains, President Obama would reduce incentives to work and invest. Additional requirements on employers would encourage them to open plants overseas, rather than in America, slowing job creation.
After the euphoria in the streets and the chants of “yes we can” have faded, the question will remain: do Obama’s promises make fiscal sense?
Diana Furchtgott-Roth can be reached at dfr@hudson.org.
We're apparently more than able to sink hundreds of billions into wars, hundreds of billions into companies that dug their own grave, yet you are afraid of $100 billion going to the most deserving of such aid? Sounds like standard trickle down economic rhetoric to me...
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Diana Furchtgott-Roth, the author of this article, is a senior fellow at the Hudson Institute. The Hudson Institute is a Republican NeoCon
think tank.
Some people affiliated with The Hudson Institute, in addition to the author of this article, are Conrad Black, Robert Bork and I. Lewis “Scooter” Libby.
Unfortunately, history has shown that politicians of both major parties promise and deliver on gratuitous, tax cuts to win or retain office while continuing to grow and expand government without bound. This has lead to ballooning deficits and a national debt exceeding $10.5 trillion. The US citizens and federal government are equally culpable of fiscal irresponsibility. Where is the true leadership in this country? The national debt is a tragedy of monumental proportion that erodes the government’s ability to provide for its citizens. Unfortunately, the current national debt will not be paid off in our lifetime and will be a legacy that we pass on to our children (assuming it doesn’t cause the total collapse of the US government).
BTW - If previous Democratic and Republican administrations had managed their budgets appropriately, then we would have an extra $400-$500 billion today to spend on programs or initiatives of our choice instead of paying it as interest on the national debt. This is the true cost of living beyond our means for the past 50 years. It seems that a sound fiscal policy and a plan for the future would be in order, but that would require true leadership….
AS LONG AS Obama Keep his promises, who care who pay for it, but I am not going to pay for it.
What we need is Robin Hood. Yes. Robin Hood. So what???
These rejected elements should stop airing their outdated views in public fora. When you loose, learn to slink away. Milton Freidonomics is out at least for the near term and medium term future..at least 8 years…
The new Presidency is in possession of the exact need of the middle-class American and will address exactly that need.
Congratulations to President-Elect Obama. Sadly, he is left with a legacy of a huge debt, over $10 trillion and rising by the minute. He has asked for sacrifices from every citizen and he said that he will try his best and everything cannot be accomplished in one term. As the comment from Justin shows, the past eight years have seriously ravaged the economy, just the money spent on the two wars in Iraq and Afghanistan could have been used to change the direction of the economy. In the midst of this severe crisis, the present Administration and an irresponsible Congress have approved the astronomical Defense budget of over $600 billion! When is the US ever going to cut its Defense budget, this sector is untouched and the US will be be pouring more and more of its resources down the drain while other countries channel their resources into more productive sectors.
If those on the ‘right’ could have only given the Bush administration a reality check, perhaps we wouldnt’ be in so deep of a mess. Odd how the conservatives can be so forgiving of the duplicity and incompetence of Bush and his cohorts. Tell us, how much more badly would the Bush team have had to perform before you would have displayed the mistrust you show toward an as yet untested Obama. It seemed there was always enough money and urgency to funnel to their favorite causes and corporate friends, even if it means turning a budget surplus handed-down to them from the Clinton years into a huge deficit.
Before pouncing on President-elect Obama, first try doing a little soul-searching as to how we got into this mess. A little self-reflection might be too much to expect from ideologues, but it could go a long way toward re-establishing the trust of their fellow Americans who once put so much faith and trust in them.
Warren Buffet has said his secretary pays more taxes than he does so explain to me how we would hurt the economy by raising his taxes???
Are you one of those so called \”conservatives\” that have your hand out and then grumble about a poor widow getting supplemental social security payments????
Have you ever had a major sickness in your immediate family, like a husband, son, daughter, mother, or father and do then get laid off of your job and left without insurance???
Since you obviously have not had a very big financial problem you have all the answers and do not care about finding out about those with problems not of their own making you have all the answers—in your own little world of GREED.
Calm down, everybody. New president figures sure will put out some backyard fire. Every body need time to do what they really want to do. All slow down, speed limit 25 not 75 or 80. Part of home land security strategy.
We all know that the only people who know how to promote a healthy, growing economy are conservatives. Deregulate, cast a blind eye on the thieves, cut taxes on the rich and corporations, outsource jobs, build plants overseas to take advantage of slave labor, import goods made by slave labor and keep the middle class and poor where they were 25 years ago in terms of inflation adjusted income. Yes, a quarter century of conservative magic is how we got today’s vibrant economy and
I’m positive that everybody is chomping at the bit for another 25 years of it.
Wait…so you are trying to tell me that Obama’s plans are going to slow the economy? RIGHT. Lets stop a usless war thats costing how much a DAY? That will be enough to pay for Obamas plans may times over.
Next part, the rest of his plans are based upon those of:
Franklin D. Roosevelt.
If anyone cares to recall his work was the major factor in fixing the problems of the great depression.
Maybe you should consider reading a few books or maybe eve taking a basic economics class at a University before you write something like this.
Please take notice: All right wing solumnists, pundits and spinmeisters from the Hudson Institute, the Heritage Foundation, the Hoover Instituion, American Enterprise Institute and the rest of the “conservative think tanks” that will try mightily to undermine the incoming Obama administration — we’re on to your game, we know your tactics and we understand that your biases are purely self-serving. It will not work this time!
For a terrific (albeit 10-year old) essay on how these GOP operatives and culture warriors use their influence to undermine democracy and the interests of the voter, taxpayer and the middle class, check out this article: http://www.thirdworldtraveler.com/Democr acy/ConservThinkTanks.html
Furchtgott-Roth: “Of course, in a recession, federal deficits are desirable. The question is how to structure them to help the economy recover. By increasing taxes on upper-income earners, small businesses, and capital gains, President Obama would reduce incentives to work and invest. Additional requirements on employers would encourage them to open plants overseas, rather than in America, slowing job creation. After the euphoria in the streets and the chants of “yes we can” have faded, the question will remain: do Obama’s promises make fiscal sense?”
Routine resistance to increased taxes on the privileged class will take many forms (and has taken many forms since the beginning of time). The preceding Furchtgott-Roth quote is just one example of the same old rich person’s chorus.
These are not normal times. Therefore, such routine talk of “federal deficits” and “how to structure them” are “republican-ese code phrases” for the ever continuing Reagan/Bush x 2-era resistance to tax hikes on the wealthy privileged class. In other words, it is somehow better for America to borrow, so that the wealthy can invest and create jobs, i.e., the failed trickle-down philosophy of sharing privileged class wealth with the middle class and working class.
Much of the preceding is what we heard repeatedly from the McCain/Palin ticket. The last time I looked, the false republican message of Reagan/Bush x 2/McCain was amply REJECTED by 53% of the voting electorate and by the majority of the voting electorate in 56% of these United States and the District of Columbia.
Here’s the REAL DEAL, Mr. & Mrs. Reader: The fearful and false republican refrain about the comingling of projected across-the-board tax increases for the wealthy privileged class with IMAGINARY personal, capital gains & net profits income tax increases for the middle class & small businesses, respectively, was believed by ONLY 46% of the voters in 44% of the states…said republican song-and-dance-routine thereby receiving a mere 32% of the electoral votes nationwide.
So, I say to the critics of raising taxes on the wealthy…get off it, why don’t you. The wealthy have always been able to fend for themselves. It’s time for them to show their tax-patriotism to the flag and the country that has been so exceptionally good to them. It’s time for the privileged class of $Millionaires and “lower” privileged class of “regular” wealthy Americans to bring jobs back to America…and for the super privileged class of $Billionaires to put their fortunes at the disposal of our great nation.
It will be up to President Obama and Speaker Pelosi, as well as Majority Leader Reid, to hammer home to the democrat majority in congress (and republicans willing to listen) that all of the excuses and diversions by members of the privileged class (as well as its spokespersons) must be navigated…and very quickly. Time is running out.
America’s progressive federal income tax system that came of age out of the 16th Amendment, as well as the first tax rate schedule of February 1913 & October 1913, respectively, was turned on its head by Ronald Reagan and an obedient privileged class congress in 1981…as borrowing to pay America’s bills grew by leaps and bounds, and continued on through the subsequent presidencies of Reagan’s vice president and the latter’s son.
I don’t much care for Bill Clinton as an individual. Likewise George Bush for the same reason. Neither offered up blood-patriotism on the battlefields of SE Asia in the 1960’s and 1970’s. That is, both avoided service in the uniform of our great nation in wartime in a war zone.
Even so, at least President Clinton and the republican-controlled congress that he alternatively partnered with and fought with over a period of 6 years saw that prosperity for the privileged class lies in a large consuming middle class that absorbs the working class.
All President Reagan managed to do (besides sinking America up to its eyeballs in a quicksand of debt) was to shrink the middle class and increase the size of the working class.
The tax rate schedule that grew out of the 16th Amendment (and which was signed into law by Woodrow Wilson) intended that the privileged class pay America’s bills and minimize America’s debt. It also intended that the middle class and working class NOT be taxed…but rather that they consume with tax-free dollars.
We can’t expect that the first $66,300 and $88,400 (in today’s dollars) for single and married taxpayers, respectively, be exempt from federal income tax as originally intended in 1913. In other words, we can’t expect that the letter of the Revenue Act of 1913 be adhered to at this late date.
However, we of the 53% who voted for the Obama/Biden ticket should be able to expect that an Obama/Pelosi/Reid tax rate schedule be structured in such a way that tax reductions for the middle class and tax increases for the privileged class comply with at least the spirit of Wilson’s Revenue Act of 1913…the spirit that was dampened by Reagan’s so called Economic Recovery Tax Act of 1981 & Tax Reform Act of 1986.
It was the latter two revenue acts that started the redistribution of America’s wealth from the middle class to the privileged class, and that borrowed America’s fiscal & financial integrity to the brink of disaster…with an FY 2009 budget deficit of $1 Trillion and a national debt of $12 Trillion.
OK Jack MBA
Disabled American Veteran
oklahomajack.com
He can pay for it by ending the Empire (5% of the worlds population and 50% of the worlds war spending). Let all democracies bare the cost of a free world.
* stop the Bush wars
* 14 aircraft carries down to 4
* no new fighter aircraft know nation is within decades of touching an F18 why do we need two new fighter?
* Bases: Rome had 36 the British empire had 39 why do we have 800
etc etc …
Obama… a brilliant preident.
After the last one, “We deserve Obama America!”
GOP eat your heart out!
By Diana Furchtgott-Roth
————————
Diana, you’re talking about the world as though there are absolutes. That’s a very mundane train of thought.
Obama by changing the ‘geopolitical’ situation (especially in the M.E, and namely Iran) could bring the price of crude oil down, and therefore give this economy “a real boost” CHEAP OIL!!!
Don’t worry Diana, it is obvious Obama wasn’t your choice of candidate. But don’t worry about it, “you’ll get over it”!
Proud to be a liberal
Since Mr. Obama dosen’t understand anything he talks about except that he wants to rule America I am certain he dosen’t comprehend what Diana Furchtgott-Roth has written either. The certainty since December of 2007 that Obama would win the election caused investors to cash in their stocks. That’s right you Obamamaniacs!Your Savior caused the world wide economic depression he now says he wants to solve. The only way Obama can fix the problems he caused is to resign before taking office in January. And Biden, Pelosi and Reid must also resign with him.
sounds like their are a few bitter McCain fans out in limbo. the best comment still covers all of it. look, the last four years have been a mess. Obama is about to try to work on cleaning it up. it is going to take sometime. it is not going to happen overnight. change takes time. McCain was going to face the same challenges. he had no plan, he had no reason, he was going to keep us going in the same direction. say what you want to say, the people spoke. it will take sometime and it will take all of us. no matter how much money you make, you have to change the way you are living. parents have to be parents to their children. we have to live within our means. the government has to control how they spend. everyone has to be smarter. all of this he is not ready mess and you will see garbage all of you need to get over it. right now, Obama needs us and we Obama. or you can just keep crying in you little world talking about Bush Bush and McCain and palin………
Taking from the rich to give to the poor and then everyone will be rich and equal? That sounds like Robin Hood? The U.S. is not in never never land. People in this country get rich because they worked hard and they’re always ambitiously achieving more. Are we to punish hard workers who went to college, stayed late at work and risk their savings to start their own business and reward those part time McDonald fryer operators who burn the fries time after time even with a timer on?
Jordan stated, “How is it fair to simply tax those that are making more money even more to pay for those that aren’t contributing to society? It would make far more sense, and would give more incentive for people to work, if everyone was taxed equally.”
There are three fundamental flaws in Jordan’s premise.
First, Jordan ignores local and state taxes, which are generally regressive, though they vary greatly. A progressive federal income tax, when added to the state and local taxes that all of us pay, would create an overall equal tax burden that Jordan proposes. (Unless of course you can afford to pay a lobbyist to provide some special loopholes, which is a fundamental problem in Washington DC and all state capitals).
Second, Jordan states that those who aren\’t in the highest 5% income bracket are not contributing to society. Such an extreme position, I hope, doesn’t represent the attitude of most Americans. We all know dedicated productive people who aren’t ever going to be multi-millionaires. None of us propose a government-funded life of leisure for the lazy, but entitlement programs are not the issue here. A progressive federal tax system is the most fair system for all.
Third, Jordan apparently thinks that the richest elements of society worked hard to earn their wealth. Ideally, this is true. However, trends indicate that the strongly tiered class system remains in effect. Wealth doesn\’t all trickle down to everyone; the rich of any country, under any tax policy, manage their money wisely so that it is retained in the family. This is understandable.
Yet some billionaires, Warren Buffett and Bill Gates, for example, believe that their wealth shouldn’t be blindly handed to their direct offspring to create another layer of paparazzi-attracting leisure class nobility. Refreshingly, these men have demonstrated their desire to return their fortune to society through trusts with the express goal of wealth redistribution to improve the health and education of the least fortunate. Apparently Jordan either disapproves of this goal or mistakenly believes that private industry would do a good job of ensuring a high standard of health care and education for the youth who are least able to afford it. Jordan, please show me a nation that has a lower overall personal tax rate than the USA that has both higher educational achievement and health statistics for children. When you can, then lower spending for children can be achieved and we can relax the tax rate for everyone without allowing society to decay. Until then, let us first work on making our system less wasteful and more efficient in an effort to keep up with the dozens of nations with higher health and education standards than the USA.
Not to worry Furchtgott-Roth, the worst is behind us. President-elect Obama can\’t possibly do worse than 8 years of Republican policy. Obama only has talent. It takes genius to bring the entire global economy to the brink of nuclear meltdown. Leave it to the new president to put the economic Humpty Dumpty back together again and blame him if he fails. But, we will. Pity President-elect Obama? No, I would rather pity the commentators like you who can\’t come to grips with the new political reality in America. Suck it up, sweetheart.