The Ultimate Flaw in Obamanomics

Jeff. what many forget to tell you is that those same countries that universal healthcare and generous welfare benefits are finding it hard to sustain their programs and generate economic growth at the same time.

Ralph, your plan, once again, is static. It does not consider people's changing behavior towards taxes. Say, for instance, you remove the payroll cap and tax all income. Well, how will this affect uberrich folks, who generate most of their income through capital gains? If the cap were to be removed today, it would only harm those who are making $107,000 or more (according to 2008 payroll tax reqs on ssa.gov). This is a tax that each years seeps its way into the middle class (and let's not forget, anyone making $107,000 or less are already paying for this tax). This tax may hit individual workers hard, but it hits married couples even harder. And your beginning quote about having something left over is ignorant of the fact that a surplus is leftover taxes. Do you honestly think the government would employ a "lockbox" method if there were a surplus?

I am deeply skeptical of Obama's "doughnut hole" theory. In one breath he says that he will "raise the cap gains tax on all individuals" but is willing to give people who are making 90K and 250K a break on payroll taxes. This is completely disingenuous at best, completely idiotic at worst. How is he going to give these people a tax cut and a tax increase at the same time?

And to your final point, about it not being fair for seniors, this just pure ideology. What about fairness for younger workers who have to pay into Social Security and play gamble that they may or may not have access to it when they retire? Seniors have had all of their working lives to save and invest and accumulate wealth. Don't try to sit here and say that seniors are under duress during their working life, when they have had 40+ years to make good decisions about their finances. This argument of trying to "guilt" people into giving up their economic future for the sake of others is foolhardy and is what got us in this mess with Social Security and Medicare in the first place.

Chris of AZ @ May 25, 2008 14:11:46 PM

Re:obamanomics and taxe

Jimmy P - thanks for your reply to my criticism of your column on Obama's plans for social security. You say your plan will "make SS solvent and provide money left over." This leaves me somewhat mystified. Why would we need to have anything left over after resolving the problem of long term solvency? As you know the SS surplus will persist until 2017. Isn't there a lot of grousing already about how Congress is spending the SS surplus on other programs since Al Gore started making a big deal out of the so-called "lock box" question during the 2000 election debates. A lot of viewers were scratching their heads at the time over what Gore meant by the "lock box" but it is pretty well understood now that he meant keeping the SS surplus separate from the general fund so as to prevent Congress from spending the surplus for other programs. So any combination of tax increases and/or SS cuts in benefits should not generate a surplus beyond resolving the long term solvency problem. Why do I say that Obama's plan is "elegant?" Because it only increases taxes on a small group of high income individuals making over the current cap which is close to 90K, and this is by all measures fair. Obama even suggests that if the definition of middle class (as opposed to upper class) goes up to 200k or 300k annually that he will consider a "doughnut hole" between 90K and say 250K to lessen the burden. Your plan of a combination of spending cuts, later retirement age and price indexing would be too complicated and would have to calibrated through complex calculations to achieve its purpose and hence is not "elegant." It also is unfair in that many seniors are beginning to experience health problems from about sixty on up and are not prepared to supplement their retirement on the meager pensions provided through their employment given the declining or failing performance at many corporate pension plans. And we need also to take account of the many more retirees who have exhausted their 401K plans through early withdrawals under duress during their working life.

Ralph Sato of HI @ May 25, 2008 07:11:08 AM

USA should be first in "all" areas.

Many other countries have universal health coverage and much more generous retirement programs ... Why does the USA have to settle for less ?

Jeff Blum of CO @ May 25, 2008 03:03:18 AM

USA should be first in "all" areas.

Many other countries have universal health coverage and much more generous retirement programs ... Why does the USA have to settle for less ?

Jeff Blum of CO @ May 25, 2008 03:01:18 AM

re:obamanomics and taxes

And my plan would make SS solvent and provide money left over. It doesnt take much elegance to simply raise taxes and pour more money into a system that provides a lousy return. I mean, what is the opportunity cost here. Obama so far doesnt show much enthusiasm for cutting spending anywhere, other than the Pentagon. But maybe he will in time.

james pethokoukis of DC @ May 24, 2008 19:34:00 PM

I like how people who know little or nothing about economics argue not on the merits of economics, but rather on ideological beliefs, such as goldie's diatribe about how Bush and Reagan are destroying America, but seem to forget that one John F. Kennedy also cut taxes in order to grow America's economy. Of course, the economy is only damaged under Republican Administrations, but never under Democratic ones.

Daniel, all forms of government use the Social Security trust fund to pay for all kinds of things. It is not only used to pay for tax cuts or wars, but also for education, housing, welfare, etc., etc. This is the fundamental point about governments and taxation: when governments tax, they are liable to spend the money on anything, and there is not much any of the taxpayers can do about it (except try to vote the bums out of office).

Dallas, you state some very good proposals, but all of them will require either drastic cuts in current spending (and based on your proposals, you're not in favor of that) or drastic increases in taxes. One thing that all of you who favor raising taxes is that you base your ideas on static behavior, meaning that people will not respond to rises in taxes. However, history and fundamental economics already tells us that people do not remaing static in face of rising taxes and will take necessary precautions or steps to avoid paying higher taxes.

Chris of AZ @ May 24, 2008 18:22:44 PM

Obamanomics and taxes

Jimmy P (I watch Kudlow's show religiously) I think this column is a cheap shot at Obama's simple idea to solve the social security solvency problem. Why start off with Obama's elegant and fair (why shouldn't everyone pay the same rate on all of their income not just the income below 90K) and then switch to a speculation about what Obama (may or may not) do to entitlement (the old weasel word entitlement again to divert peoples attention to Medicare as well as SS) spending once he gets the ceiling lifted on payroll taxes? According to estimates made by the journal Dollar Sense, Obama's plan would eliminate 93% of the social security shortfall for the next 75 years.

Ralph Sato of HI @ May 24, 2008 15:45:56 PM

Problems and Solutions

Current Problems

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1) An economy based upon continual growth (both population and resource consumption) is not sustainable in the long-term.

2) An economy that concentrates wealth at the top tiers of society is not sustainable in the long-term. At least not sustainable without a significant percentage of the population effectively becoming economic (and in fact political) serfs/slaves.

3) For decades, average wages have been falling while the price of goods has continued to increase. In large part this is due to the transition from an industrial to a service/information economy.

4) The poor will always be among us. It is morally unacceptable to allow them to suffer when we can appropriately aid them.

5) One of the government's burdensome (and difficult) duties is to redistribute wealth in order to meet these needs (via taxing and spending). Unfortunately this duty has not been executed well in the past.

6) The current systems (Social Security, Medicare, etc.) are in dire need of reform in order to meet the demographic challenge of an aging boomer population.

7) The current proportion of our government's budget spent on these items is too large (and continues to grow). The money we spend on these programs is an opportunity cost, because we could be spending that money in more intelligent and productive ways.

Possible Short-Term Solutions

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1) Increase taxes

2) Shift more spending from other programs to these

3) Decrease benefits

4) Decrease the number of individuals receiving benefits

5) Cease giving out government benefits (privatize)

6) Borrow

7) Do nothing, wait for recipient numbers to decline through mortality

None of these solutions are particularly positive (especially not the last which is morally reprehensible). However, in all likelihood some combination of the above will guide our near term policy.

Possible Long Term Solutions

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1) Stop taxing middle class incomes, savings, and investments. Start taxing consumption. This will help engender a more sustainable economy (via reduced consumption and waste) and encourage personal savings and investment.

2) Balance the economic divide by taxing income on the super-rich and transferring wealth to the poorest (supplementing their income up to, but not over a specific income threshold).

3) Create an industrial policy for the country.

4) Make birth-control (in a variety of forms) free and generally available to the public.

5) Invest in preventive medicine and promote/reward healthy life-styles at all ages.

6) Invest in programs that contribute to a productive economy such as education, infrastructure, and research.

7) Seek alternative energy sources and ways to improve old ones.

8) Vigorously target the root causes of poverty.

This list could go on. The point is that while we need to get over the short-term hump, we also have to be focused on long-term solutions.

Oh... and go Obama!

Dallas of CA @ May 24, 2008 15:23:36 PM