We've been hearing some pretty hysterical things said by Barack Obama's critics about Obamanomics.
Socialist. Destroyer of wealth. Enemy of small business.
So, here's a primer on how Obama, if elected, will be "spreading the wealth around" in the next four years—and why he's far from a socialist radical.
And even, to a struggling but hopeful entrepreneur like myself (call me Jack the Writer), not cause for alarm.
Let's begin with some historical perspective. The United States responded to the last existential crisis faced by Americans—the triple-headed threat posed by Depression, Fascism, and Communism—by raising taxes and going into debt, big time, to pay for all those Sherman tanks and B-17 bombers and ICBMs we needed to defend ourselves. We paid down that debt, gleefully, with high income tax rates in the golden economic era, the Happy Days, that followed World War II.
But as the middle class grew larger in that time of postwar prosperity, more and more Americans crept into the top tax brackets that had, previously, been the exclusive domain of the filthy rich. John F. Kennedy and Lyndon Johnson cut income taxes, bringing the top rate down from its confiscatory wartime high of 94 percent to 70 percent.
There things stood until the modern conservative era arrived, in part on the wings of a potent antitax movement. Ronald Reagan, in his first year in office, dropped that top rate to 50 percent.
The recession of 1982 and other events led him to tinker a bit—signing big tax hikes in his remaining years in office—but, after the tax reform bill of 1986 (which eliminated a lot of the loopholes by which companies and wealthy individuals dodged taxes), he left his successors with a 28 percent top rate and a worrisome federal budget deficit.
George H. W. Bush faced reality, broke his "Read my lips, no new taxes" promise, and signed a big tax bill during his presidency. Bill Clinton, still facing those Reagan deficits, listened to the bond market and raised taxes again in his first year in office. Both men paid a political cost, but these two tax hikes put the nation's finances on a sound basis, and the economy responded with roaring growth. The top rate was now at 39.6 percent.
As James Carville likes to ask, "What didn't you like about the Clinton years? The peace or the prosperity?"
Well, the Bush-Clinton tax hikes brought in so much money during the high-tech boom that the federal budget was balanced and the deficit erased. And in the fall of 2000, both Al Gore and George W. Bush offered big tax cuts if elected.
The Gore-Bush argument was a preview of the Obama-McCain dispute. Gore wanted to target tax cuts for the middle class; Bush urged a bigger, across-the-board tax cut that was tilted toward the wealthiest Americans.
Bush won. His tax cuts (which McCain voted against) passed Congress and contributed to a massive redistribution of riches in America. Wealth moved out of the bank accounts of working and middle-class families and into those of the wealthiest Americans. The top rate was down to 35 percent.
To cut taxes as deeply as they wished, without releasing a river of red ink on the books, the administration and its allies in Congress set time limits on almost all the Bush tax cuts, which will expire during the next presidency.
If Obama or McCain don't do anything, we'll all be facing much higher taxes. Not a good idea when the nation is trying to climb out of a recessionary slump. So both parties have promised tax cuts, and we the voters have a classic opportunity to gauge each party's priorities.
As he made the transition from maverick to Republican presidential hopeful, McCain concluded that the across-the-board tax cuts that he opposed back in 2001 now look pretty good, and he has vowed to permanently extend them, and cut various other taxes, at a cost of $3.7 trillion over the next 10 years.
Obama has responded with a Gore-like approach, which favors the middle class and leaves the top rate where it was during the years of Clinton prosperity—at 39.6 percent—lower than after Reagan's first big tax cut and ridiculously undeserving of the charges of "socialism" or "destroyer of wealth."
According to an analysis by the wizards at the Tax Policy Center at the Urban Institute and Brookings Institution, if Obama is elected, and his proposal is passed by Congress, 81 percent of American households will see their taxes go down, 8 percent will see no change, and the wealthiest 11 percent will pay higher tax bills.
Obama's plan will cost the Treasury $2.7 trillion—a trillion saved from what McCain hopes to provide the wealthy—over the next 10 years.
Under the Obama plan, the bottom 20 percent of households in America would get a tax cut of $567, and the middle 20 percent would see their taxes drop by $1,042. But the richest 1 percent of Americans (those earning an average of $1.5 million a year) would see taxes go up by $116,000.
Under the McCain plan, the bottom 20 percent would get a $19 tax cut, the middle fifth would get a tax cut of $319, and the wealthiest 1 percent would see their taxes go down by more than $40,000.
Neither plan qualifies as European-style socialism.