Friday, November 07, 2008

If Obama is a Socialist....

..... So was Ronald Reagan.

In the last days of the McCain campaign, in an effort to win the election, an attempt was made to label Obama a Socialist. The opening for this attack was Obama replying to a question from Joe the Plumber about taxation and Obama telling Joe that he wanted to “spread the wealth around”. I think that the McCain camp was right to use this incident as an opportunity to showcase the differences between the way Democrats and Republicans think about economic issues, but they went a little overboard.

Democrats tend to think that it is the government’s job to redistribute wealth and equalize outcomes and punish success; republicans tend to think that people have a right to keep more of what they earn and that economic growth is more important than redistribution. However, we are talking about degrees of differences of opinion, not polar extremes.

You probably have seen the clip or read the report of this exchange: A Florida info babe quizzed Sen. Biden about Obama's intention to “spread the wealth” and quoted the famous Marxist principle of "From each according to his ability, to each according to his need." She then asked Biden, “How is Sen. Obama not being a Marxist if he intends to spread the wealth?” Biden paused momentarily, grinned, then asked, “Are you joking? Is this a joke? Is this a real question?” Biden went on to defend Obama saying he hoped to spread the wealth by giving the middle class tax breaks. I could not help myself; I was rooting for Biden in that exchange. He was right to show contempt for the questioner and the info babe looked like an indeological air head.

Recently Pat Buchanan wrote in an article, “ If Barack Obama is not a socialist, he does the best imitation of one I've ever seen. Under his tax plan, the top 5 percent of wage-earners have their income tax rates raised from 35 percent to 40 percent, while the bottom 40 percent of all wage-earners, who pay no income tax, are sent federal checks. If this is not the socialist redistribution of wealth, what is it?” Buchanan then goes on also to quote the Communist Manifesto.

How can Buchanan do that with a straight face? Buchanan is not an air head. Don’t get me wrong, I favor more economic freedom; not less. I favor less economic redistribution; not more. However, why is the current 35% not socialist and 40% is socialist? What if the current rate was 36% and Obama wanted to raise it to 39%? I think I have it figured out; if you favor a marginal tax rate of below 37.5% you are not a socialist but if you favor anything above 37.5% you are socialist.

How can Republicans, like myself, who recently favored a $1 trillion bailout of Wall Street in order to prevent an economic collapse, have the right to call Obama a socialist? If you do not favor elimination of the graduated income tax, Social Security, Medicare, Medicaid, food stamps, welfare and the Earned Income Tax Credit, you might be a socialist.

Let us look at who is a socialist. George Bush did not cut social spending; he increased it. Who gets credit for a Medicare drug prescription plan and No Child Left Behind? Is George Bush a socialist?

John McCain supports the retention of an estate tax and he opposes the Flat Tax and he opposed Bush's 2001 tax cut arguing that it unfairly benefited the rich. I guess if Obama is a socialist, John McCain is a socialist.

Our nations largest wealth redistribution program is The Earned Income Tax Credit. Low-income people who make insufficient income to owe any income tax are given a “refund” when they file taxes. This program was first proposed by Richard Nixon and was called The Negative Income Tax. Congress failed to pass it, when the Welfare Rights Organization opposed it because they thought it should be more generous and they could get a better deal.

Congress approved the EITC in 1975 at the urging of Gerald Ford. President Carter slightly expanded the program, and Ronald Reagan greatly expanded it. Ronald Reagan heralded the EITC as "the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress." I guess that makes Ronald Reagan a socialist.

Now, back to the tax rate issue. (I lifted this from Wikipedia.)

  • In 1913 the tax rate was 1% on taxable net income above $3,000
    ($4,000 for married couples), less deductions and exemptions. It rose to a rate
    of 7% on incomes above $500,000.
  • During World War I the top rate rose to 77%; after the war, the top rate was scaled down to a low of 25%.
  • During the Great Depression and World War II, the top income tax rate rose again. In the Internal Revenue Code of 1939, the top rate was 75%. The top rate reached 94% during the war and remained at 91% until 1964.
  • In 1964 the top rate was decreased to 70% (1964 Revenue Act), then to 50% in 1981 (Economic Recovery Tax Act or ERTA).
  • The Tax Reform Act of 1986 reduced the top rate to 28%, at the same time raising the
    bottom rate from 11% to 15% (in fact 15% and 28% became the only two tax
  • During the 1990s the top rate rose again, standing at 39.6% by
    the end of the decade. The top rate was cut to 35% and the bottom rate was cut
    to 10% by the Economic Growth and Tax Relief Reconciliation Act of 2001

Do you see this? The rate has been all over the place. The rate has often been above the magic rate of 37.5 percent, which I have calculated must be the dividing line between socialist and not socialist.

It was Ronald Reagan who greatly cut tax rates. However, tax rates do not tell the full story. Along with tax rates cuts, tax policy was simplified and many previous exemptions were eliminated. As a result of the Reagan tax policy, the rich ended up paying more in taxes than they did prior to the tax cuts. Liberals don’t want to believe it and much of the public does not know it, but the Reagan policies increased the amount of taxes paid by the rich, and decreased the amount paid by the poor.

I think we should have vigorous debate about economic and tax policy and poverty and wealth creation, except that it would put most of the public to sleep. If something doesn’t fit on a bumper sticker, it is hard for the public to grasp.

It does concern me that someone’s thought processes and values are such that they can cavalierly call for “spreading the wealth.” However, if Obama can be labeled a socialist so can Richard Nixon, Gerald Ford, Ronald Reagan, George Bush, John McCain and anyone to the left of Ron Paul.

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