The Obama Tax Hike

[GaryC 7]

The Obama Tax Hike

By ANDREW G. BIGGS

March 12, 2008; Page A20

Until recently, Sen. Barack Obama took a responsible position on Social Security, noting the urgency of reform and saying all options should be on the table.

But having cornered himself among Democratic activists whose attitudes toward Social Security reform range from demagoguery to denial, Mr. Obama has recently veered sharply left. He now proposes to solve the looming Social Security shortfall exclusively with higher taxes.

"Once people are making over $200,000 to $250,000," Mr. Obama says, "they can afford to pay a little more in payroll tax." No shared sacrifice, no outreach to moderates or conservatives, here.

Mr. Obama's proposal is to make a significant change to the payroll tax system. Currently, all wages below about $100,000 are subject to a 12.4% Social Security payroll tax. But all wages above that amount are not subject to the tax. Mr. Obama wants to eliminate the cap, but, in a concession to taxpayers, exempt wages between $100,000 and $200,000. He wants to create a "donut hole" in the taxing mechanism that pays for the nation's largest retirement program.

The problem is two-fold: His proposal would be a very large tax hike, yet it won't be enough.

Mr. Obama's plan fixes less than half of Social Security's long-term deficit, making further tax increases inevitable. The Policy Simulation Group's Gemini model estimates that Mr. Obama's proposal, if phased as Mr. Obama suggests, would solve only part of the problem. A 10 year phase-in, for example, would address only 43% of Social Security's 75-year shortfall. And this is assuming that Congress would save the surplus from the tax increases -- almost $600 billion over 10 years -- rather than spending it, as Congress does now.

What's more, Mr. Obama's plan would keep Social Security in the black for only three additional years. Under his proposal, annual deficits would hit in 2020, instead of 2017. By the 2030s the system would still run an annual deficit exceeding $150 billion.

Mr. Obama's modest improvements to Social Security's financing come at a steep cost. The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over.

If one accounts for behavioral responses, even the modest budgetary improvements from Mr. Obama's plan are likely to be overstated. If employers reduce wages to cover their increased payroll-tax liabilities, these wages would no longer be subject to state or federal income taxes, or Medicare taxes. A 2006 study by Harvard economist and Obama adviser Jeffrey Liebman concluded that roughly 20% of revenue increases from raising the tax cap would be offset by declining non-Social Security taxes. Assuming modest negative behavioral responses, Mr. Liebman projected an additional 30% reduction in net revenues, leaving barely half the intended revenue intact.

Mr. Obama's plan would also dramatically raise incentives for tax evasion, further degrading revenue gains. Many high-earning individuals evade the Medicare payroll tax by setting up "S Corporations," paying themselves in untaxed dividends rather than taxable wages. John Edwards avoided $590,000 in Medicare taxes this way in the 1990s. Under Mr. Obama's plan, Mr. Edwards's savings would have exceeded $3 million. With that much at stake, the incentive to follow Mr. Edwards lead will be that much greater.

Mr. Obama's plan shows the limits to taxing the rich as a solution to Social Security's problems. Top earners would effectively be tapped out, with taxes as high as economically and politically feasible, yet most of Social Security's deficit, and the much larger shortfalls in Medicare, would remain.

The U.S. already collects far more Social Security taxes from high earners than other countries do. Social Security taxes here are currently capped at about three times the national average wage -- far above other developed countries. In Canada and France payroll taxes are levied only up to the average wage. In the United Kingdom, taxes stop at 1.15 times the average wage; in Germany and Japan at 1.5 times. Social Security is already more progressive than these countries' pension programs, and Mr. Obama's plan would make it more so.

President Bill Clinton considered lifting the wage ceiling modestly, but was skeptical of eliminating it outright. Doing so would "tremendously change the whole Social Security system . . . We should be very careful before we get out of the id

ea that this is something that we do together as a nation and there is at least some correlation between what we put in and what we get out," Mr. Clinton said in 1998. "You can say, well, they owe it to society. But these people also pay higher income taxes and the rates are still pretty progressive for people in very high rates."

Social Security's shortfalls are primarily attributable to society-wide trends of lower birth rates and longer lifespans. If we want to retain the shared character that underpins its political support and distinguishes it from traditional welfare programs, we need to share the burdens of reform proportionately. Mr. Obama should drop his exclusive focus on raising taxes and return to his previous view, that Social Security faces significant problems requiring prompt attention. All options should be on the table.

Mr. Biggs, a former principal deputy commissioner at the Social Security Administration, is a resident fellow at the American Enterprise Institute.

http://online.wsj.com/article/SB1205281803...in_commentaries

[GaryC 7]

What? Everyone wants more taxes?

[Nagishkaw 510]

The Obama Tax Hike

By ANDREW G. BIGGS

March 12, 2008; Page A20

Until recently, Sen. Barack Obama took a responsible position on Social Security, noting the urgency of reform and saying all options should be on the table.

But having cornered himself among Democratic activists whose attitudes toward Social Security reform range from demagoguery to denial, Mr. Obama has recently veered sharply left. He now proposes to solve the looming Social Security shortfall exclusively with higher taxes.

"Once people are making over $200,000 to $250,000," Mr. Obama says, "they can afford to pay a little more in payroll tax." No shared sacrifice, no outreach to moderates or conservatives, here.

Mr. Obama's proposal is to make a significant change to the payroll tax system. Currently, all wages below about $100,000 are subject to a 12.4% Social Security payroll tax. But all wages above that amount are not subject to the tax. Mr. Obama wants to eliminate the cap, but, in a concession to taxpayers, exempt wages between $100,000 and $200,000. He wants to create a "donut hole" in the taxing mechanism that pays for the nation's largest retirement program.

The problem is two-fold: His proposal would be a very large tax hike, yet it won't be enough.

Mr. Obama's plan fixes less than half of Social Security's long-term deficit, making further tax increases inevitable. The Policy Simulation Group's Gemini model estimates that Mr. Obama's proposal, if phased as Mr. Obama suggests, would solve only part of the problem. A 10 year phase-in, for example, would address only 43% of Social Security's 75-year shortfall. And this is assuming that Congress would save the surplus from the tax increases -- almost $600 billion over 10 years -- rather than spending it, as Congress does now.

What's more, Mr. Obama's plan would keep Social Security in the black for only three additional years. Under his proposal, annual deficits would hit in 2020, instead of 2017. By the 2030s the system would still run an annual deficit exceeding $150 billion.

Mr. Obama's modest improvements to Social Security's financing come at a steep cost. The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over.

If one accounts for behavioral responses, even the modest budgetary improvements from Mr. Obama's plan are likely to be overstated. If employers reduce wages to cover their increased payroll-tax liabilities, these wages would no longer be subject to state or federal income taxes, or Medicare taxes. A 2006 study by Harvard economist and Obama adviser Jeffrey Liebman concluded that roughly 20% of revenue increases from raising the tax cap would be offset by declining non-Social Security taxes. Assuming modest negative behavioral responses, Mr. Liebman projected an additional 30% reduction in net revenues, leaving barely half the intended revenue intact.

Mr. Obama's plan would also dramatically raise incentives for tax evasion, further degrading revenue gains. Many high-earning individuals evade the Medicare payroll tax by setting up "S Corporations," paying themselves in untaxed dividends rather than taxable wages. John Edwards avoided $590,000 in Medicare taxes this way in the 1990s. Under Mr. Obama's plan, Mr. Edwards's savings would have exceeded $3 million. With that much at stake, the incentive to follow Mr. Edwards lead will be that much greater.

Mr. Obama's plan shows the limits to taxing the rich as a solution to Social Security's problems. Top earners would effectively be tapped out, with taxes as high as economically and politically feasible, yet most of Social Security's deficit, and the much larger shortfalls in Medicare, would remain.

The U.S. already collects far more Social Security taxes from high earners than other countries do. Social Security taxes here are currently capped at about three times the national average wage -- far above other developed countries. In Canada and France payroll taxes are levied only up to the average wage. In the United Kingdom, taxes stop at 1.15 times the average wage; in Germany and Japan at 1.5 times. Social Security is already more progressive than these countries' pension programs, and Mr. Obama's plan would make it more so.

President Bill Clinton considered lifting the wage ceiling modestly, but was skeptical of eliminating it outright. Doing so would "tremendously change the whole Social Security system . . . We should be very careful before we get out of the id

ea that this is something that we do together as a nation and there is at least some correlation between what we put in and what we get out," Mr. Clinton said in 1998. "You can say, well, they owe it to society. But these people also pay higher income taxes and the rates are still pretty progressive for people in very high rates."

Social Security's shortfalls are primarily attributable to society-wide trends of lower birth rates and longer lifespans. If we want to retain the shared character that underpins its political support and distinguishes it from traditional welfare programs, we need to share the burdens of reform proportionately. Mr. Obama should drop his exclusive focus on raising taxes and return to his previous view, that Social Security faces significant problems requiring prompt attention. All options should be on the table.

Mr. Biggs, a former principal deputy commissioner at the Social Security Administration, is a resident fellow at the American Enterprise Institute.

http://online.wsj.com/article/SB1205281803...in_commentaries

Typical.

[dalegg 143]

I say let them have it.

Unlike the Clinton Years, this Democrat will have a Democratic congress, so people will get to see the full affect of a Democrat run congress and what all of this nonsense will result in. This will be the perfect 4 years for Republicans to regroup and get a candidate they actually like. Remember the last time we had 4 years of a Democrat president with a Democratic congress the result was a Republican President for 20 of the next 28 years.

[GaryC 7]

I say let them have it.

Unlike the Clinton Years, this Democrat will have a Democratic congress, so people will get to see the full affect of a Democrat run congress and what all of this nonsense will result in. This will be the perfect 4 years for Republicans to regroup and get a candidate they actually like. Remember the last time we had 4 years of a Democrat president with a Democratic congress the result was a Republican President for 20 of the next 28 years.

I ended up jobless and homeless after Carter. I am getting to old to live through that again. The trouble with most Obama supporters is they see history through a book rather than living through it. Or worse yet, they think that somehow it will be different this time around. With Obama and a dem congress we will see the worst this country has gone through since Carter. In fact, Obama is in many ways worse than Carter. I just don't want to go through that terrible time again.

[Mr. Big Dog 10,747]

The answer to all this is fiscal discipline. The Republicans have forgotten what fiscal discipline is at least from Reagan onward. Both in the White House and in Congress. It's kind of hard for Republicans to argue now that they will save the day. They haven't shown to be capable of that anywhere in the last 28 years. Governments, deficits and debts have nothing but grown under the Republicans. So much so that nobody can really take seriously any claim from that side that they'll get it under control this time around. They can't. In fact, they won't even try.

[Ban Hammer 12,841]

What? Everyone wants more taxes?

just those who think they'll benefit from their sense of entitlement.

[Mr. Big Dog 10,747]

What? Everyone wants more taxes?

just those who think they'll benefit from their sense of entitlement.

Some people actually feel that we should pay our own way rather than unloading that burden on our children. But I guess that's un-American.

[Pinocchio Liberal 268]

What? Everyone wants more taxes?

just those who think they'll benefit from their sense of entitlement.

Welfare isnt an entitlement. Obama is gonna rename it an incentive!

[dalegg 143]

The answer to all this is fiscal discipline. The Republicans have forgotten what fiscal discipline is at least from Reagan onward. Both in the White House and in Congress. It's kind of hard for Republicans to argue now that they will save the day. They haven't shown to be capable of that anywhere in the last 28 years. Governments, deficits and debts have nothing but grown under the Republicans. So much so that nobody can really take seriously any claim from that side that they'll get it under control this time around. They can't. In fact, they won't even try.

This is exactly what I mean. They keep on pandering to the left by growing government instead of realing it in thinking somehow it will achieve gains at the polls. It hasn't, so they need to go back to basics, and in 2012 they will have both the opportunity and the mandate to do just that.

Although part of me is a bit frightened over the next 4 years, I see this as an opportunity and hope Obama won't actually do everything he says he wants to once he starts to see the affects. The problem with McCain coming in is that for the most part we will remain the same as now- which by the way I think is just great. The last 4 years for me have easily been the best years of my life. But unfortunately millions of people are somehow convinced that the country is in horrible shape and they will just keep nagging on and on for 4 more years thinking pseudo socialism is the answer and perhaps someone even farther left than Obama will come in. I think its time to give people a refresher course.

Edited June 11, 2008 by dalegg

[Jack and Barbara 0]

Wasn't Obama's tax proposed tax hikes going to overwhelmingly affect the top 5% of income earners? If so, I can only assume those complaining are either CEOs afraid their corporate taxes will "prevent" them from creating new jobs and hiring more employees like Exxon has been doing over the past 6 years...

Or, these VJers are pretty well off and can't imagine having their 6 figure salaries taxed in the first place.

I believe government should do as much as it can with what it has but do support helping out those who cannot help themselves. Some may call it socialism, but that isn't true. If that means increasing taxes, say to pay off debt from the current administration's tenure (easy response to the finger pointing by hypocritical Republicans claiming the Democratic-controlled Congress has done nothing in regards to the energy policy), then so be it. With continued importsand reliance on global countries, the days are gone of exporting a sufficient amount of goods to combat the imports from global players such as China, India, Japan, etc, as whole. The weakening dollar, primarily during the current administration, is only going to make it harder to pay off the debt the U.S. is accruing on a daily basis.

I for one, unfortunately cannot attest to what it must be like to be in the top 1-5% of all Americans, who btw, were on the receiving end of tax cuts by the Bush presidency during wartime (which makes sense in the bizarro world). Even not being anywhere near the top %, I would not mind having my taxes increased (modestly) to help out those below me. And, by reading numerous posts about those who need joint sponsors on this site alone, I know there are many people who could use help. Obama's tax plan did not propose tax increases for the poor, but instead mentioned getting rid of the income tax altogether for senior citizens.

http://www.cnn.com/2007/POLITICS/09/18/oba...plan/index.html

http://www.bloomberg.com/apps/news?pid=206...&refer=home

http://www.taxfoundation.org/blog/show/22617.html

[Mr. Big Dog 10,747]

The answer to all this is fiscal discipline. The Republicans have forgotten what fiscal discipline is at least from Reagan onward. Both in the White House and in Congress. It's kind of hard for Republicans to argue now that they will save the day. They haven't shown to be capable of that anywhere in the last 28 years. Governments, deficits and debts have nothing but grown under the Republicans. So much so that nobody can really take seriously any claim from that side that they'll get it under control this time around. They can't. In fact, they won't even try.

This is exactly what I mean. They keep on pandering to the left by growing government instead of realing it in thinking somehow it will achieve gains at the polls. It hasn't, so they need to go back to basics, and in 2012 they will have both the opportunity and the mandate to do just that.

Although part of me is a bit frightened over the next 4 years, I see this as an opportunity and hope Obama won't actually do everything he says he wants to once he starts to see the affects. The problem with McCain coming in is that for the most part we will remain the same as now- which by the way I think is just great. The last 4 years for me have easily been the best years of my life. But unfortunately millions of people are somehow convinced that the country is in horrible shape and they will just keep nagging on and on for 4 more years thinking pseudo socialism is the answer and perhaps someone even farther left than Obama will come in. I think its time to give people a refresher course.

So, you think it's just great that we are becoming a nation of borrowed wealth? That we're essentially pawning our children's future? I don't think that's great at all. I'd like to leave a better place for my children than what I had not one that's worse.

[GaryC 7]

The answer to all this is fiscal discipline. The Republicans have forgotten what fiscal discipline is at least from Reagan onward. Both in the White House and in Congress. It's kind of hard for Republicans to argue now that they will save the day. They haven't shown to be capable of that anywhere in the last 28 years. Governments, deficits and debts have nothing but grown under the Republicans. So much so that nobody can really take seriously any claim from that side that they'll get it under control this time around. They can't. In fact, they won't even try.

This is exactly what I mean. They keep on pandering to the left by growing government instead of realing it in thinking somehow it will achieve gains at the polls. It hasn't, so they need to go back to basics, and in 2012 they will have both the opportunity and the mandate to do just that.

Although part of me is a bit frightened over the next 4 years, I see this as an opportunity and hope Obama won't actually do everything he says he wants to once he starts to see the affects. The problem with McCain coming in is that for the most part we will remain the same as now- which by the way I think is just great. The last 4 years for me have easily been the best years of my life. But unfortunately millions of people are somehow convinced that the country is in horrible shape and they will just keep nagging on and on for 4 more years thinking pseudo socialism is the answer and perhaps someone even farther left than Obama will come in. I think its time to give people a refresher course.

So, you think it's just great that we are becoming a nation of borrowed wealth? That we're essentially pawning our children's future? I don't think that's great at all. I'd like to leave a better place for my children than what I had not one that's worse.

If you get your way and Obama is elected he will tax you to the point that your children will have nothing anyway. Raising taxes on us only makes us poorer.

[Jack and Barbara 0]

The answer to all this is fiscal discipline. The Republicans have forgotten what fiscal discipline is at least from Reagan onward. Both in the White House and in Congress. It's kind of hard for Republicans to argue now that they will save the day. They haven't shown to be capable of that anywhere in the last 28 years. Governments, deficits and debts have nothing but grown under the Republicans. So much so that nobody can really take seriously any claim from that side that they'll get it under control this time around. They can't. In fact, they won't even try.

This is exactly what I mean. They keep on pandering to the left by growing government instead of realing it in thinking somehow it will achieve gains at the polls. It hasn't, so they need to go back to basics, and in 2012 they will have both the opportunity and the mandate to do just that.

Although part of me is a bit frightened over the next 4 years, I see this as an opportunity and hope Obama won't actually do everything he says he wants to once he starts to see the affects. The problem with McCain coming in is that for the most part we will remain the same as now- which by the way I think is just great. The last 4 years for me have easily been the best years of my life. But unfortunately millions of people are somehow convinced that the country is in horrible shape and they will just keep nagging on and on for 4 more years thinking pseudo socialism is the answer and perhaps someone even farther left than Obama will come in. I think its time to give people a refresher course.

I take it you weren't in Iraq and/or Afghanistan.

[GaryC 7]

The answer to all this is fiscal discipline. The Republicans have forgotten what fiscal discipline is at least from Reagan onward. Both in the White House and in Congress. It's kind of hard for Republicans to argue now that they will save the day. They haven't shown to be capable of that anywhere in the last 28 years. Governments, deficits and debts have nothing but grown under the Republicans. So much so that nobody can really take seriously any claim from that side that they'll get it under control this time around. They can't. In fact, they won't even try.

This is exactly what I mean. They keep on pandering to the left by growing government instead of realing it in thinking somehow it will achieve gains at the polls. It hasn't, so they need to go back to basics, and in 2012 they will have both the opportunity and the mandate to do just that.

Although part of me is a bit frightened over the next 4 years, I see this as an opportunity and hope Obama won't actually do everything he says he wants to once he starts to see the affects. The problem with McCain coming in is that for the most part we will remain the same as now- which by the way I think is just great. The last 4 years for me have easily been the best years of my life. But unfortunately millions of people are somehow convinced that the country is in horrible shape and they will just keep nagging on and on for 4 more years thinking pseudo socialism is the answer and perhaps someone even farther left than Obama will come in. I think its time to give people a refresher course.

I take it you weren't in Iraq and/or Afghanistan.

What does that have to do with the discussion? Typical left response. When faced with a position you can't defend then chance the subject.