Tuesday, July 29, 2008

Obama Policy a Disaster for Small Businesses

By Linda Daves
Chairman, North Carolina Republican Party

Barack Obama is offering more of the typical class warfare rhetoric employed by Democrat politicians this year on the campaign trail. Even while preaching his belief in a message of "unity" and campaigning on "change," he follows the same, tired Democrat political playbook to divide us according to the number on our pay stubs. It won't work this time. Voters are wise to this divisive tactic. When we look at who will actually be harmed by Obama's policy proposals on the economy, we know it won't be the rich. After all, those with plenty of money can make up for any new tax hikes Obama may propose.

Who will be harmed then? The answer is regular folks. With Obama increasing the top marginal tax rate, millions of small businesses who choose to file as individual income earners will be directly harmed. This is no small harm as Obama's plan would reduce the after-tax income for these small businesses from 55.4 cents on the dollar to 37.2 cents, a one-third reduction in after-tax income. Small businesses will then face the choice to either cut one-third of their costs or lay off one-third of their workers. Small business is the engine for job creation in North Carolina and across the country. In tough economic times and a declining jobs market, we need to enact economic policies that will help these businesses find their way to prosperity instead of placing government as the obstacle in their path.

Obamanomics Is a Recipe for Recession

By Michael J. Boskin
The Wall Street Journal
July 29, 2008

What if I told you that a prominent global political figure in recent months has proposed: abrogating key features of his government's contracts with energy companies; unilaterally renegotiating his country's international economic treaties; dramatically raising marginal tax rates on the "rich" to levels not seen in his country in three decades (which would make them among the highest in the world); and changing his country's social insurance system into explicit welfare by severing the link between taxes and benefits?

The first name that came to mind would probably not be Barack Obama, possibly our nation's next president. Yet despite his obvious general intelligence, and uplifting and motivational eloquence, Sen. Obama reveals this startling economic illiteracy in his policy proposals and economic pronouncements. From the property rights and rule of (contract) law foundations of a successful market economy to the specifics of tax, spending, energy, regulatory and trade policy, if the proposals espoused by candidate Obama ever became law, the American economy would suffer a serious setback. …

First, taxes. The table nearby demonstrates what could happen to marginal tax rates in an Obama administration. Mr. Obama would raise the top marginal rates on earnings, dividends and capital gains passed in 2001 and 2003, and phase out itemized deductions for high income taxpayers. He would uncap Social Security taxes, which currently are levied on the first $102,000 of earnings. The result is a remarkable reduction in work incentives for our most economically productive citizens.

The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phase-out and Mr. Obama's new Social Security tax (of up to 12.4%) increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.8%. People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.2 cents -- a reduction of one-third in the after-tax wage!

Despite the rhetoric, that's not just on "rich" individuals. It's also on a lot of small businesses and two-earner middle-aged middle-class couples in their peak earnings years in high cost-of-living areas. (His large increase in energy taxes, not documented here, would disproportionately harm low-income Americans. And, while he says he will not raise taxes on the middle class, he'll need many more tax hikes to pay for his big increase in spending.) …