Stories At The Margin
columnist: Jeff Peters

Topic: Election 2008
Yes, Barack Might be that Bad

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A Response to the article "Is Barack that Bad?"

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by Jeff Peters
(conservative)
Saturday, September 6, 2008

I appreciated the article titled "Is Barack that Bad?" written by this fellow. He or she will be a great addition to the young crew here at Nolan Chart.

However, I do have a quibble or two.

Obama on Taxes

It is true that Obama will increase the average tax rate on the upper middle class and the entire upper class, and lower the average tax rate for everyone else. To those who advocate redistribution of wealth, they would appreciate this policy. But when we pay attention to taxes we should look at them on two fronts: the overall burden and how the tax increase distorts incentives. The marginal tax rate helps us understand the latter.

Why is the marginal tax rate and incentives important? When we make the decision of moving into another tax bracket we pay attention to the price of the imposition on making an additional amount of money. In other words, if we feel making an extra grand is not worth it because of the high price (tax) attached to it, then we may decide to not move into an upper bracket. This is just another application of the Law of Demand - the higher the price the less we consume.

So why talk incentives and the marginal tax rate - because this study shows that Obama will raise marginal tax rates - quite significantly on EVERYBODY, not just the Rich. The point is that it may stop the people Obama wants to help from moving on up and pursuing a more comfortable lifestyle at their convenience. It also affects human capital, because studies do show that getting a degree will almost double or triple someone's yearly salary. To promote growth "for everyone" we want to continue to reward social mobility, not tax it.

However, when speaking of moving into a higher tax bracket, we also need to understand a more ambiguous component - how much people value moving into a higher tax bracket. Will that additional 1000 make a difference in their life despite the 30% tax on those dollars? Who knows, but it's an aspect worth considering.

The Rich and Economic Growth

So this leads me to another controversy that I typically find ridiculous and a nuisance. Do we necessarily want to continue reprimanding the rich for being rich? Do we necessarily want to tax them to a degree that they lose the incentive to make more money and expand their businesses? If they expand, it's likely to create jobs for people, which is the essence of trickledown economics.

Growth from the Bottom Up

And who knows how effective Obama's form of bottom-up growth will be. His idea of capital gains taxes, pushing it to zero for startup businesses, is kind of odd - they have no capital gains when they are starting up - as McCain's economic advisor rightly pointed out in this video. They want to tax different companies, in different sectors, differently. Supposedly, they are going to figure out which companies will contribute to the economy the most and tax them less. To me, this parallels with common elitist thinking - we're smart and we know everything.

A point I do agree with is that they promise they will lower taxes and topple bureaucratic hurdles in important sectors that will obviously affect the future of this country - such as the alternative energy sector. But then, Obama must contradict himself again by proposing that companies and small businesses will need to increase their contributions to programs like healthcare for their employees. This just creates another tax, another burden, another form of economic disincentive to hire more employees, leading to less people with jobs.

All in all I find it weird, if not difficult to comprehend, for Obama to advocate improving human capital through improved education opportunities, but would limit hiring opportunities by taxing the rich and raising tax burdens on the upper class, and forcing small businesses to pay another price.

Despite the criticisms on these fronts, it's important to note that the magnitude of these effects may not even that big. That's why I named the article "Yes, Barak MIGHT be that Bad."

Obama on Gay Marriage

Moving on to another debate, Barack is a person of religious values. He also disagrees with gay marriage - one of those issues that take significant time and energy from real debates like the War in Iraq and addressing a potential disastrous economy. Obama advocates Civil Unions instead of allowing same-sex couples to call it what they want. If there's something that I think Karl Marx hit the nail on, it is the debate about the role of religion in the political arena. It does nothing for anybody, but delay debates on issues that threaten our country. Save some time and leave those quarrels at the altar. I get into this idea a bit more about marriage as a contract in this essay. I always expected a person of Barack caliber to move this country beyond these problems to more time sensitive issues.

The War in Iraq and our Relations Abroad

Moving again on to another debate, I still find the most important challenges for our future is dealing with the Middle East and remaining the most powerful and influential nation in the world. I don't really know how to assess his position on the War in Iraq but I find this situation to be an important opportunity to create stability in that part of the world.

Many people will argue about the justifiability of entering Iraq. In my opinion, these debates must advance to the questions encompassing leaving Iraq and the Middle East with stability - but a sort of stability that will responsibly allocate its scarce resources in demand by the global community. In matter of fact, I think this will always be one of America's main concerns - because oil is that scarce and that damn important to us and the developing world. I don't know if he will deal with this situation properly, or in a way that lacks military or policy sanctions, just as I don't know how particularly well he will accommodate our energy concerns.

Obama does bring to the table a new charming face of integrity, intelligence, and seriousness. People in the intellectual community respect him for a reason, but his technocratic nature of "I know it all" makes me quite skeptical. After watching numerous of Obama's presentations, and hearing him talk about solving all of America's problem, I came to agree with columnist David Brooks: he really has too much confidence in himself.

But he does have a benefit no other politician has ever had. Just as companies continue to seek and invest in diversity to expand their cultural horizons, Obama's presence directly accommodates that desire in government. He may have the goods, which were never available to former politicians, to deal with world-wide problems such as tyranny and hunger in Africa, disaster and violence in the Middle East, and a new promotion of Democracy around the globe. He may bring trust to the West never seen before partly because of his background and his ethnicity. Hopefully this trust translates into an expansion of democratic values. However, these positive externalities of his overall character, largely depends if he makes a fine impression on the greatest Democracy in the world: the USA.

Update:

Harvard Economist Greg Mankiw on Barack Obama's tax plan to reduce dividend double taxation for the middle class and slightly increase it for the rich.

So it seems that Barack Obama can be useful in preserving the relative low double taxation of dividends. According to Mankiw, strategically speaking, Obama's presence as a Democrat will more likely maintain the relatively low dividend tax of 20% instead of waiting for it to expire and go back up to 40%. Although this is an interesting idea, I still don't think a top marginal tax rate near 50% will do much for the economy.

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©2008 Jeff Peters, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Saturday, September 6, 2008
Last modified: Sunday, September 7, 2008

The views expressed in this article are those of Jeff Peters only and do not represent the views of Nolan Chart, LLC or its affiliates. Jeff Peters is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.

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