Whatever is left of the economy after the current round of crisis interventions by the Fed could go down the drain if Obama is elected and carries out his plans for sharp increases in taxation. Even if Obama does not understand the linkage, most Americans do and will turn sharply against Obama’s tax plans if McCain hammers away at the risk they pose for us all.
During the Great Depression, Congress raised taxes sharply in the Revenue Act of 1932. The top rate went from 25% to 63%. As a result, the real GDP dropped by 13.3% and unemployment rose from 15.9% to 23.6%.
In 1990, Buash-41 famously broke his “read my lips – no new taxes” pledge of the 1988 campaign and raised the federal gasoline tax, federal excise taxes, and imposed 10% surtax on the top income bracket, raising its taxes to 31%. The recession which followed in 1991-1992 cost him re-election.
It is obvious that increasing capital gains taxes by a minimum of one-third and possibly doubling them, both of which Obama has proposed during his campaign, would send a clear signal to investors to keep their money under the mattress. Who would buy stock now knowing that the tax on any profits he or she will make is going to go up sharply if Obama becomes president.
Look at what happened just last year in Michigan. Democratic governor Jennifer Granholm raised taxes on almost everything in 2007. Income taxes shot up 11.5% and the state’s 6 percent sales tax was expanded to dozens of new services like investment advice, janitorial services, landscaping, ski lifts,=2 0carpet cleaning, and tanning. The $1.75 billion tax package shook the economy to its foundations. Michigan became the only one of the fifty states with a shrinking gross domestic product (GDP). The value of all goods and services produced in the state fell by one half of one percent while the national GDP rose by 3.4%. The state fell from 23rd in GDP to 35th. Taxes caused a disaster.
In a strong economy, Obama’s tax hikes would raise questions. In a weak economy, they portend a catastrophe. It would be like bleeding a sick patient, the medicine of two hundred years ago, depriving him of blood even as he needs more not less circulating through his arteries.
McCain’s populist rhetoric, including his pledge to fire SEC Chairman former Congressman Christopher Cox, is important for a Republican candidate. But his focus should shift to the tax issue. With firms suffering, withering, and dying for a lack of capital, tax increases on those who invest would be a horrible mistake. Americans will realize this obvious fact and McCain should use it to gain the advantage in discussing the economy. There is no reason for the economy to work to Obama’s advantage when he is committed to a doctrinaire program of tax increases and spending hikes. McCain can use the issue to run rings around him.
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Lets see if I have this right. The Republicans and Democrats agree that if an executive has been irresponsible and incompetent in carrying out their responsibilities they should not get paid. Hmmmm. So I guess it would be asking too much for them to include Bush and most of Congress on that list.
How about a new campaign for the next 40 or so days. Forget R’s, D’s and Independents and how about we just commit to NOT vote for ANY incumbent?
[…] es, en este sentido, la reflexión de Dick Morris, que advierte de que Obama podría perder su ventaja en el tema económico respecto […]
How come Obama’s web site, his speeches and the MSM make no mention of his proposals re: increasing capital gains tax, increases in business tax, and increases in estate tax?
The fact is that taxes are going to be raised, regardless who gets elected. Taxpayers are already screwed because banks have stopped lending money. The big difference between this bailout and the ones that have come before, meanwhile, is that the banks aren’t yet on death’s door. Thus Paulson and Bernanke must be persuaded these banks to participate in the bailout–by making it a boon to them and a liability for taxpayers. Orchestrated by then-Senator Phil Gramm of Texas, the bill ( Gramm-Leach-Bliley Act),further deregulated the banking and insurance industry and is directly responsible for the current wave of home foreclosures and bank failures. Washington walked away from its responsibility to protect consumers with regulations and enforcement. While federal regulators looked the other way, banks and private mortgage companies indulged in risky loans and speculative investments.
Nevertheless, McCain has continued to parrot his mentor’s economic views, arguing in favor of further deregulation of banks and business in general. “I have a long voting record in support of deregulation,” McCain said in 2003. “I am a deregulator…. I believe in deregulation,” he told CNN that same year. Earlier this year, as Wall Street was in meltdown and millions of Americans were at risk of losing their homes, McCain told PBS that “we need less government [and] less regulation” and that “I’m always for less regulation.” This March, after the collapse of Bear Stearns, McCain continued to favor deregulating Wall Street. Only in the last week has McCain changed his tune. He’s endorsed the Bush plan to bail out Wall Street firms that engaged in risky, irresponsible behavior, instead of supporting government help for millions of troubled homeowners.
Here is an interesting bit of history on the Financial Services Modernization Act of 1999. The article was written in Nov 1999 so while it might have some bias it is not subject to the revisionist history spewing from the mouths of Congress today.
http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml
Of particular note is the amount of money spent by financial industry lobbyist to promote the passage ( over $300mill)
By way of tempting you to read the whole article here is a quote:
“The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system.”
Are you going to post the comment I donated $25 to post? I’ve really been anxious for your reply. I didn’t mean for it to come across insulting, I hope my comment didn’t bruise you too much, and I’m sorry if it did.
-Robert
I have to admit, this post got me thinking you may have a point, until I started looking at the actual facts and compared them to the case you try to make. And in contrast to your post, I’m giving references to the facts I’m stating.
During the Great Depression, the Revenue Act of 1932 raised taxes across the board. Obama’s tax plans calls for a raise in taxes for the top 1.1% percent of the American working force.. So unless you’re making more than $603,402 annually, your taxes are not going up… You can ease up on the McCainorade.
If you were making 0-$4,000 annually in 1932, you were paying 4%-8% back in taxes… HUGELY different from Obama’s plan. Obama plans to increase taxes on the upper ONE POINT THREE percent of the salary bracket (those Americans making more than $603,402 a year). These are the Americans who can AFFORD to toss in a nickle and dime to help the economy. Under Obama’s plan, if you’re making $0-$226,981, you’re seeing a return. If you’re making $0-$111,645, you’ll get back a heck of a lot more than you would under McCain’s plan.
And part two of my comment was:
McCain, if you look at the numbers is planning on sending EVERY American worker a return on taxes. How in the world is he going to pay for that?? You want to talk about an economy going down the drain?!? How can you ignore this BLATANT problem with John McCain’s tax plan???
On to Bush in 1990… as you said, Bush raised taxes, although it was not his tax increase that caused the recession.. Quite the contrary. Do some research (or jog your memory) and you’ll remember it was the recession that came first, making it impossible for him to keep his word as he assumed the economic growth that started in the 80s would continue when he made his “no new taxes” promise at the ‘98 RNC. It was only AFTER the recession began that Bush raised taxes. Bush’s tax increase brought the tax on the wealthy up to 31 percent (in contrast to 18 percent increase to the top 1.5% as detailed in Obama’s tax plan)
If Bush Sr would have been a man of integrity with foresight and sound judgement, he would have been upfront about the possible necessity to tax SOMEBODY, instead of raise taxes to %31 after realizing his promise was impossible to fulfill two years into his presidency, causing possibly even a slower turnaround from the recession that had already begun and been reported prior to his tax increases.