Obama's Tax Policy

While I agree with a great many of economist Michael Boskin's concerns about Barack Obama's tax policy, I'm not sure "recipe for recession" is the right way to frame those policies.   Particularly not when we're in, or near, a recession already.   Recessions, after all, are a fairly routine part of the business cycle, tax hikes or not.  (and then there is the uncomfortable point made by, yes, Paul Krugman)

Megan McArdle's criticisms of Obama's tax policy - particularly the capital gains and corporate tax hikes - strike me as basically correct, and explained in a way that seems a bit more responsive to Democratic arguments and relevant to voters.

Worst of all, the corporate income tax and the capital gains tax aren't really very good at doing what they are supposed to do, which is make sure that the bulk of our income tax burden falls on those who will miss the money the least.  Let me posit something which isn't very controversial among tax professors no matter what their political party:  you can't tax a corporation.  That's because corporations have no feelings, and no assets, of their own.  Ultimately, the money always comes from some person:  customers, employees, owners, or even suppliers.  But the corporate taxes are not targeted by need; they come from whoever the corporation can best squeeze the money out of.  The old lady in Dubuque with 100 shares of AT&T pays the same 50% rate on corporate profits as Warren Buffett.

It would be much better to eliminate the corporate income tax and tax dividends and capital gains as ordinary income.  Barring that, raising the combined rate on corporate profits to 60% from 50% is a very, very bad idea. 

I would add that Obama's new "emergency economic plan" - basically, a second route of "rebate checks" - is just profoundly short-sighted Robin Hood nonsense.  Blatant 'if you vote for me, I'll screw that guy for you."

Ultimately, Obama's proposed changes to capital gains and corporate taxes are probably going to be a lot more signfiicant than any income tax rate changes that Obama might make.  As McArdle notes, "higher marginal tax rates on the rich" probably are not "going to plunge the economy into the next Great Depression".   Higher income taxes are not going to help the economy, but - at current American tax rates - relatively small marginal income tax increases probably are not going to affect GDP growth a great deal.

Over the medium-to-long term, the real problem is spending.  And, as McArdle points out, "once we've spent the money, we've already effectively taxed".  That means reducing entitlement spending.  Until we figure out a way to do that, it's hard to see how we avoid tax increases.  We're paying for it, one way or another.  For the short term, we need to limit the damage.