4%--That's What Joe-the-Plumber, Socialism, Communism, is All About

Our political dialogue is so pathetic that the major 'issue' McCain is trying gin up in the waning moments of this campaign is what they call the devastating effects of Obama's tax plan on people and small businesses that make over $250,000 without ever being called on the carpet for not stating how much that tax increase is.

4%--yes, that is it, the tax increase on the top bracket that McCain predicts will cause the sky to fall (further), and what prompts Sarah Palin to draw upon her deep knowledge of history and economics to pronounce it 'socialism', or, more recently, a nightmarish communism.

Our dearly-beloved news media, always preferring a manufactroversy (i.e., manufactured controversy) to useful dialogue, has fanned the flames of this issue. The news stations call on pundits of the right and left to argue about it, but never mention it is...4%. Joe Biden was even asked by a Florida News Station whether it amounted to Communism! 4%!

So, let us take an example. Suppose Joe does buy out his business, and suppose he works hard, and suppose there are not so many unemployed that business is good. Suppose the business, after expenses, takes in $300,000. What would be Joe's additional tax burden? About $2000...or less than 1% of his total income after expenses. In a $300,000 business that is almost rounding error. Moreover, if he provides healthcare for his employee(s), Obama will give him a $3000 credit.

Let us assume that fortune truly smiles on Joe, and his business nets $500,000 after expenses. His additional tax burden under the Obama plan? ~$10,000. If he had to hire a couple of more workers to do it, and provided them health care, Obama's plan would provide $9000 in credits. Moreover, if he decided to sell the business (say for 2X revenues against a purchase price of $250,000), his total capital gains tax under the Obama plan--ZERO. Under current law that McCain will extend, his capital gains tax would be $112,500.

Guess that must mean that McCain is a socialist. Hey Joe--want to re-think your allegiance?

What about the impact on the economy? In 1993 the Clinton budget raised the top bracket to the same rate as Obama proposes now. The Republican chicken-littlers could not have been more certain that the economy, already in the "Bush41-recession" (when the economy recovers and we are dying for another downturn, just elect Jeb, it's in his DNA), would tank.

But, what actually happened? Only 23 million new jobs, that's all. Damn those pesky facts anyhow!

In the aggregate, of course, the small increase on the top bracket will provide revenue for the government to offset partially expenses for what we desperately need--tax relief for the middle class who have lost real income under Bush/McCain policies, and some of the public investments in infrastructure, in health care, in a new energy economy, in education that have been languishing for the last 8 years.

Some may argue that the tax increase on the upper bracket ought to be deferred until the economy has recovered. That way, even more deficit spending will increase total demand in the economy.

Although plausible, such a policy is unwise because of the massive deficits of the borrow-and-spend Bush/McCain economic policies. We live in a globalized economy, and money has a funny way of insisting upon realism. We may assert moral exceptionalism all we want, but the financial world is like Missouri--it says "show me" everyday. In '93 the small tax increase on the upper bracket showed the markets that the US was, finally, fiscally serious. To re-establish credibility in the international system--just one more piece of US legacy Bush/McCain policies have trashed--we will gain more economic mileage by making that small tax increase.

I have previously addressed the stupidest part of the ridiculous McCain economic "program", viz., cutting government spending in a time of cratering private demand. Briefly, the experience of the New Deal in the 1930s is about as close to a controlled experiment as will ever be found in economics--FDR began lifting the country out of the Great Depression by deficit spending, then reversed that improvement by balancing the budget in 1937, and revivified the economy again by increasing spending to prepare for World War II. (See, "McCain's Plan: Not Just Worse than the Alternatives, but the Dumbest Idea Since Putin Reared His Head", October 15, 2008).

Moreover, the public investments FDR made--from rural electrification to soil conservation to public works projects--all redounded to the long-term benefit of the US economy once private demand re-emerged following World War II. Adam Smith, for all us real free market capitalists, would call that creating competitive advantage.

We know, today, with even greater clarity than in the 1930s, what public investments would not only create jobs and thus increase total demand in the short-term, but also provide a competitive advantage to the US when we cycle out of this downturn--renewable, home-grown energy; a reformed, more efficient healthcare system; world-class education; high-speed rail between cities and light rail within them; repairing roads, bridges; making fuel-efficient automobiles.

As we shed the people who brought us Iraq and the Great Recession, let us also shed their shibboleths.