by Alan Reynolds

This article appeared in the New York Post on February 15, 2008.

Hillary Clinton and Barack Obama both propose to “turn the economy around” in a novel way - by raising tax rates on small businesses, working couples and stockholders in general, including retirees.

Of course, their plans are also meant to raise revenue for their various hundreds of billions in new spending - but the move would fall flat on that front, too.

Start with the deficit. The Bush administration predicts a $409 billion budget shortfall for fiscal 2009. But that rests on absurd assumptions - a sudden $104 billion drop in the price of war in Iraq and Afghanistan, a freeze in non-security discretionary spending - and a speeding up of economic growth.

In fact, this election year’s “stimulus” bills are likelier to slow things down in 2009. Seven of the 10 postwar recessions began in the year after a presidential race, including 2001 and 1981.

So, with luck, the next president may start out with an economy that is only fragile or feeble and a deficit not much above $500 billion.

Now, on to tax hikes.

Higher tax rates on dividends and capital gains would crash the stock market yet do absolutely nothing to cut the deficit.

The federal government now takes 33 percent of taxable income above $200,000 on a joint return and 35 percent of income above $357,700. Both Democrats would raise those tax rates to 36 percent and 39.6 percent, respectively.

Even the Tax Policy Center (a think tank famously friendly to tax hikes and Democrats) estimates that raising the top two tax rates might bring in a mere $32 billion in 2010. That’s 6 percent of the likely deficit - not a license to start a dozen new programs.

To squeeze a few more pennies from top taxpayers, Clinton and Obama would also phase out all personal exemptions at $250,000. That means large families would pay higher taxes than childless couples with the same income. They’d also phase out itemized deductions - which would force two-earner families in New York and California to pay more federal tax than those living in Texas and Florida.

And this politically suicidal tax discrimination against New Yorkers, Californians and big families would bring in only an extra $15 billion a year.

All in all, these tax hikes add up to, at most, $47 billion a year - only 1.5 percent of federal spending and 0.3 percent of Continue Reading »

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This article appeared in the Sacramento Bee on February 21, 2008.

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Barack Obama is now the clear frontrunner for the Democratic presidential nomination. He’s risen high on his inspiring persona and uplifting rhetoric. At a time of prolonged war and economic uncertainty, he appeals to Americans’ hope for something better than the bitter partisan infighting that has paralyzed Washington. And Obama offers an opportunity for closing America’s racial divide. It is hard not to cheer his success.

Yet, politics is also about issues. And on this score, Sen. Obama represents less hope and change than a wish list for every conceivable liberal special interest group.

This shouldn’t come as a surprise. According to the respected and nonpartisan National Journal, Obama is the most liberal U.S. senator, with a voting record actually to the left of Bernie Sanders, Vermont’s self-proclaimed socialist. Consider what Obama actually promises to do:

TAXES AND SPENDING: There is no doubt that an Obama presidency would represent a return to traditional tax and spend liberalism. According to the National Taxpayers Union, Obama has so far proposed at least $287 billion per year in new government spending. And that was before he unveiled his $150 billion “green energy plan” last week. Nor does that include the spending proposals he has supported in the Senate but not discussed on the campaign trail. For example, Obama is the co-sponsor of a Senate bill to spend at least $845 billion over the next five years to fight global poverty. CNBC economic analyst Larry Kudlow estimates that, when all is said and done, Obama’s new spending plans will cost us more than $800 billion per year.

He would pay for all of this with higher - much higher - taxes. He would, of course, allow the Bush tax cuts to expire in 2010. But that’s just the beginning. Obama has also called for removing the cap on Social Security payroll tax, a $1.3 trillion tax hike over the first five years. And, at a time when the U.S. economy is slowing down, Obama would significantly increase taxes on business, investment, and job creation, including nearly doubling taxes on capital gains. Americans would face some of the highest marginal tax rates in the world.

HEALTH CARE: A President Obama would take America down the road to a government-run health care system. He supports a concept known as “managed competition” under which insurance would remain privately owned, but would operate in an artificial marketplace with strict government regulation, much like a public utility. The government would determine what types of benefits you would be required to purchase and how much insurers could charge. Young and healthy people would have to pay more than they ought to in order to subsidize premiums for older sicker individuals.

While he would not actually mandate that individuals buy health insurance - a point of contention with Hillary Clinton - Obama would mandate that all employers provide their workers with insurance. That proposal would almost certainly end up hurting workers. An employer is indifferent as to whether compensation comes in the form of wages, taxes, health insurance or other benefits. Employers will therefore have to find ways to offset the added costs. This they can do by raising prices, lowering wages or reducing future wage increases, reducing other benefits such as pensions, or hiring fewer workers. As always, employees will be the net losers, with the low-skilled suffering most.

REGULATION: A health care mandate is not the only new regulation that Obama wants to impose. For example, he would require businesses to pay an undefined “living wage.” He would require paid “family and medical leave.” He would regulate mortgages and credit card interest rates. He would impose a host of environmental and labor restrictions. The net cost of this regulatory burden will almost certainly be higher unemployment and greater poverty.

And it’s not just businesses that would feel the regulatory hand of an Obama presidency. Consumers too will have to pay, as he imposes new costs on products ranging from homes to automobiles and appliances. In almost everything we do, Obama sees a need for the government to intervene.

A President Obama would mean a much bigger, more intrusive, and costlier government. Indeed, when considering his policies, one searches in vain for any break with liberal orthodoxy. Personal accounts for Social Security? Entitlement reform? School choice? Obama rejects them all, calling such proposals, “Social Darwinism.”

That’s a lot less inspiring than Obama the candidate.

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