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Taking A Look At Obama’s and McCain’s Tax Plans

26 September 2008 7 Comments

As we head into tonight’s debate, the political scene is roaring due to the controversial bailout being orchestrated which perhaps brings together our nation’s capital and Wall St. closer than ever before. Since both candidates have very different views on taxes, and it definitely impacts your money, we’re going to take a look at these plans and ideas.

Purpose Of Taxation

Unfortunately, we don’t talk enough about the purpose of taxing the citizens of America. If we focused on the purpose of taxation, perhaps we would make better informed decisions on certain candidates tax plans. I believe the number one purpose of taxation is to fund government. Yikes, that’s pretty vague. Being fairly conservative when it comes to government and fiscal policy, I prefer a smaller government which takes care of our country’s basic functions such as infrastructure (roads, hospitals), defense and other domestic functions such as justice.

A major purpose of taxation that we have embraced as a society is redistribution. This is essentially transferring wealth from a richer segment of society to a poorer segment of society. This is undoubtedly going to be a part of government and taxation, the question which remains controversial is to what extent. This wealth redistribution aims to help out those who struggle to get by financially.

Obama’s Plan

Obama has been claiming that he is essentially cutting taxes for just about all Americans except the top 1% income earners. A more accurate way to put it is simply a tax rebate. A large chunk of those Americans that he will be providing a tax rebate to actually do not pay any taxes at all. For these people who do not pay taxes, the rebate is simply a check in the mail; most likely anywhere from $500 to $1,000. Clearly, the main purpose of Obama’s plan is wealth redistribution.

Now, my point in bringing this up is not to argue whether or not we should be redistributing this much wealth; however, my point is to discuss how effective this method is in actually improving the lives of those it is meant to help. For the poorest people in our country, I believe a check of $1,000 will ease the pain a little bit. However, I firmly believe this check will do nothing to lift them out of their state and push them forward to a higher standard of living. To accomplish that, much more is needed than an annual check of $1,000. This check simply perpetuates their state.

To truly bring a poor family or an individual out of their current state, two things are needed: education and a chance to earn more money. This is drastically different than a small government hand out each year. First, when I say education, I don’t mean a college degree or even a high school diploma. I am referring to being educated in how to manage money. Without this education, people who can’t manage $15,000 a year won’t be able to manage $60,000 a year. How many times have you seen someone win the lottery go broke?

Second, poor people need a chance to make more money. Sending them a check for a grand does not give them this chance, it just helps them pay a few bills. Remember, being able to pay a few bills a little easier does not lift a person out of their hole; in fact, it can be argued that it keeps them in their hole. In order to have a chance to make more money, their community needs investment. Money needs to pour into their community to create businesses and higher paying jobs. Instead of our government sending each person a check, I would rather see a government program that allows and pays for poor people to go away and learn how to run a business. After learning the required skills, the government would provide funding for them to start a business only in their original community. This would instill a sense of ownership as well as create jobs in that community. Again, a chance to make more money is necessary to go from one standard of living to the next.

These are the reasons why I do not agree with the style of wealth redistribution that we find in our country today. This is why I do not like Obama’s tax plan. For the record, I would benefit personally from Obama’s plan; however, I’m trying to focus on the well being of our country. Now, let’s move on to McCain’s.

McCain’s Tax Plan

McCain’s plan is more conservative in that it aims to keep taxes the same according to Bush’s tax cuts. Bush’s plan is frequently criticized as to benefiting the rich. Whether you agree with that or not, I’d like to address the economic argument that you should cut the taxes of the rich to stimulate investment which helps fuel the economy.

While, I agree with this argument to an extent, the one flaw I have with it is where the rich investments tend to go. The idea is that rich people’s money stimulates the economy because it invests in businesses and creates jobs. Unfortunately, most money from rich people (by rich, I’m talking the top 1% – those who earn like $250,000 a year) tends to go into safe investments such as a diversified personal portfolio. Most rich people do not actually go into venture capital or become angel investors. Most businesses are started up through funding from oneself or through one’s family and friends. These family and friends typically have money but are not necessarily the top echelon of what we consider being rich. Also, the credit system is typically more important in fueling growth in companies.

With that said, please note that I do not believe in heavily taxing the rich simply because they are rich. I am very conservative in my view on taxes, but I am able to objectively view the argument of cutting taxes for the rich to stimulate the economy.

My Preferred Tax Plan

Now that’d we have addressed the major issues you typically hear regarding taxes, I’d like to explain what I see fit to be the tax plan of our nation. I think taxes should be cut as much as possible across the board while still being able to fund the government functions we need to operate this country. I believe wealth redistribution should not be a primary function of taxation. Instead, I propose government solutions and programs like the one I mentioned above to help out the poor in our country.

I also believe our tax code should be severely simplified. For this reason, I am fairly intrigued by the Fair Tax. The Fair Tax is a move away from the income tax which frees up significant capital and instead taxes consumption in our country. It benefits poor people because all consumption up to a certain level is tax free; therefore, a poor person will make more money due to payroll taxes going away and will not be taxed on basic consumption (I’m still fairly surprised that liberals reject the Fair Tax). Also, the Fair Tax will ensure illegal immigrants pay taxes. Currently, they pay no taxes, yet get the benefits of our society. It will encourage legal immigration because legal immigrants will get the “poor credit” up to the certain level of consumption where illegals would not get this benefit. It is more complex, yet is still very interesting.

My last point has to do with helping the poor or being insensitive to those who did not have the same blessings and advantages as me growing up. I completely agree that some have it easier than others. This is why I give 10% of my income away without question each month. I truly believe in helping others. Yet, I reject that government taxation is the best way to help others. Private organizations are more accountable and more efficient in helping others; therefore, I prefer my money goes to them. I encourage you, if you believe in helping others, to write a check yourself to a non-profit that helps people. Then go vote against the government taking my money and your money.

7 Comments »

  • Wess Stewart said:

    Hooray for the FairTax!

    Everyone should get behind it. It works, it's been heavily researched, and it's just a darn good idea.

    I really hope someone enacts it.

  • Dan said:

    This is an awesome article explaining the difference between the two, as our economy continues to melt down, it is great to have clear cut information like this without having to sort through all the bull.

  • Chris said:

    Here is what I don’t get about consumption tax. It seems like our economy is based off consumerism accounting for somewhere around 70% GDP and the consumption tax is anti-consumption. You may not believe it would change behaviors, but I know it would change mine.

  • kevin duffey said:

    True, but Chris remember you’ll have more money to begin with because your income tax is gone. Also, the taxes that are already embedded into the price of an item you are buying will be gone resulting in lower prices.

    I think those 2 factors will more than compensate for additional sales tax. Would love to hear your thoughts on that.

  • Chris said:

    I think you underestimate my cheapness (so obviously I may have a skewed thought process compared to average american). I may be in the minority, but I would buy even less and save all my tax money to invest. It would work out great for me, and I think long term it would work out to make a stronger economy, but I do believe we would be in for short term pain(short term pain always means not politically possible). Are you aware of any articles by someone you respect for me to study further on that you could link to??

  • kevin duffey said:

    The Fairtax book by Boortz and Congressman Linder explains it all. It responds to the common criticisms and explains everything you can think of regarding the idea.

    See a review of the book coming soon on this blog.

    Thanks