By Richard Larsen
Published – Idaho State Journal, 10/12/08
After the stock market crash of 1929, President Herbert Hoover sought to shore up the country’s ailing economy with a series of brash measures. He increased taxes, adopted a protectionist posture to “save American jobs,” and increased regulation. While his policies played well in a populist way with American voters, they significantly exacerbated a deepening economic depression and in the end not only hurt the economy, but profoundly affected all Americans psychologically as well as economically.
Are we about to relive that dark period of American history? We should know in about three weeks, as one of our Presidential candidates has the same policies as the now infamous Herbert Hoover espoused.
I am astounded that Obama can get away with saying he will not raise taxes, but will rather decrease taxes on America’s middle class. The Bush tax cuts of 2001 and 2003 were touted as the largest tax-cuts in history and have worked wonders not only for the amount of money they allowed working Americans to keep in their own pockets, but in increasing Treasury Receipts of revenue flowing into the treasury, up 35% since 2003 according to the Congressional Budget Office. But Obama has made it abundantly clear that he wants the Bush tax cuts to expire the end of 2010, while McCain advocates making them permanent. Without mincing words, if the Bush tax-cuts expire, we will experience the largest tax increase in history. Deductively, then, Obama advocates the largest tax increase ever, and the harshest impact will be felt by the middle-class.
Let’s look at what the Bush tax cuts have meant to the average American, and what happens if they expire. A single person making $30,000, will see Federal income taxes increase from $4,500 to $8,400. Married couples making $60,000 will see their taxes go from $9,000 to $16,800; married couples earning $75,000 will see their income taxes go from$18,750 to $21,000, and those making $125,000 will increase from $31,250 to $38,750. Those are middle-class income ranges.
In addition to the increase in income taxes, the marriage penalty will be restored. The difference between what you pay in taxes as a married couple and what you would pay as two single persons is often referred to as the marriage tax penalty. According to the Congressional Budget Office that penalty amounts to $1,400 per tax-paying couple.
Even more inscrutably, Obama advocates increasing the capital gains tax rate from the current rate of 15% to 20%, 25%, or even 28%, depending on which campaign speech you read. That means if you sell your home and make $100,000 on the sale, instead of paying $15,000 on the capital gains, you would pay $20,000, $25,000, or even $28,000 on the profit.
The same holds true for stock and mutual fund sales, which would affect over 60% of households. And if you receive dividends from your stock and mutual fund portfolios, the taxes you pay on those dividends will go from 15% back to a maximum of 39.6%. So instead of paying just $1,500 in taxes on $10,000 of dividends, you will be paying as much as $3,960 in taxes. There are other factors that may affect that rate, but for the sake of simplification and space limitations, I can’t address those here.
In light of this data, it is not only unconscionable for Obama to say he will not raise taxes on the middle class, but it is dishonest.
As for international trade, Hoover signed into law the Smoot-Hawley Tariff Act which was supposed to protect American jobs and markets by raising taxes on imported goods to record levels. The affects proved to be disastrous to the economy and deepened the depression. Unemployment skyrocketed across the nation, especially in the export sector, and what little revenue was recovered from tariffs hardly offset the loss in revenue from the lost jobs, even union labor which the tariffs were supposed to protect. Obama has spoken like a true protectionist by blasting free trade agreements. He argued against the Columbia Free Trade agreement, and regarding NAFTA (North American Free Trade Agreement) said in a debate in March, “I will make sure we renegotiate. I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced.”
Economists nearly universally credit our open trade policies for preventing the U.S. from dropping into recession thus far, with the latest reading for 2nd quarter of 2.7% GDP (Gross Domestic Production) growth rate. That is remarkable when we consider that second-quarter GDP was down 1.2% in France, 2% in Germany, 3% in Japan and 5.5%-6% in Hong Kong and Singapore. Our exports amounted to $1.7 trillion in 2007 making us the biggest exporter in the world, largely because of our free trade agreements. According to the Wall Street Journal, 16 million U.S. jobs are dependent on exports.
Obama essentially admitted that higher taxes and protectionism would hurt the economy when he said last week he may have to delay implementation of his plans depending on how the economy is doing when he takes office.
Some have said that an Obama administration would be like a 2nd term for Carter. In light of his domestic policies, it might be even more disastrous: like a 2nd term for Herbert Hoover.