Senator Obama has been proclaiming vociferously since the primaries that he would roll back the Bush tax cuts on the 'wealthy.' He used class warfare from the Democratic arsenal to secure the far left constituency who make up the majority of primary voters. His mantra was to first repeal all the Bush tax cuts that would be tantamount to a tax increase. Secondly, he would lift the cap on wages that can be subject to a payroll tax. Third, put the top marginal rate up to 39.8% and if that didn't grind the economy to a halt, he would raise taxes on capital gains and to at least 25% from the current 15%. His desire to have Uncle Sam reach ever deeper in our pockets served him well during the primaries, but he has since back-pedaled now that the general election campaign is in full swing. His position shifted and his tax on capital gains went from 25% to 20% perhaps to appeal to moderate voters, or maybe he was starting to realize that high taxes result in lower growth. Either way it is a step in the right direction.
The latest and greatest shift in his tax policy comes on the heels of his sinking poll numbers against Republican challenger John McCain. Obama originally wanted to raise taxes on the wealthy fat cats, which provides fodder for his base bent on wealth redistribution, but the truth of the matter is top individual income earners aren't the only ones to feel the pain if income taxes rise. Entrepreneurs and businessmen who have businesses that file under Subchapter S pay rates on their businesses as if their business was an individual. These businesses are called S Corps and they make up a major part of our small business community that employs the most people in this country. By the bye, raising taxes on small business only serves one purpose: to raise the cost of the product or service being rendered by that business. Businesses don't pay tax increases. They pass the cost on to the consumer, which effectively lowers the purchase power of the dollar that you labor so hard to earn and that is what we should be wary of. It can only serve to lower productivity and reduce demand if we work longer for Uncle Sam and less for ourselves.
Digression finished, since we have established some reasons why raising taxes is bad for the economy, Obama said on ABC's "This Week" to George Stephanopoulos that if the economy is doing poorly in January when he might be taking office, he wouldn't raise taxes that would be detrimental to job growth and our GDP. If Obama isn't just making campaign promises with his finger crossed behind his back, kudos to him for seeing the light on taxes.
-Eric
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I did not realize that some small businesses and entrepreneurs where treated as individuals like that and so therefor get taxed a lot for being wealthy. If the small business does not pass the cost of the higher taxes onto the consumer then they may not lose any customers. If the small business does pass the cost on to the consumers then that small business may lose consumers. Maybe it is more profitable sometimes for the small business to eat the cost instead of always assuming to pass it on to the consumer?
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