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Sunday, August 24, 2008

Barron's on the McCain/Obama dueling Economic Policies...

Barrons provides expert analysis on the McCain and Obama tax and economic policies. They are not kind to the outcomes should Sen. Obama's tax plans become law.

Capital -- and the attendant jobs and economic activity that go with it -- will flow out of the United States if we make taxes higher on capital and business. Money is mobile and it will flow toward the lowest tax and highest stability country. We must understand that we're in a competition and compete, or we will be the losers...

Key section (my emphasis):

In McCain and Obama, the electorate is presented with dueling visions of what shape the economy, and particularly the nation's tax structure, should take. Obama's stated belief is that the best way to revitalize America is by raising taxes on the rich and redistributing wealth to the poor and middle class. McCain, in contrast, would retain all of President Bush's tax cuts, including those for the wealthy, and cut corporate taxes markedly, with the aim of boosting investment in businesses and creating jobs.

Whichever concept prevails will have profound implications for the economy over the next decade. And, if Obama's plan prevails, it could well be for the worse. While both candidates' proposals have their pros and cons, Obama's appears to have a few too many cons. There's no question about that if you happen to be in the top 1% of income-tax payers. According to the nonpartisan Tax Policy Center, the Obama plan would boost the average tax bill for that group by $93,709, to $652,890. McCain's plan would reduce that group's average by $48,862 to $510,319.

But far more is at stake than the size of any single fat cat's tax bill. With adjusted gross incomes totaling $2 trillion, or $1.6 million per capita, the top 1% of taxpayers account for more than 20% of all adjusted gross income. And these folks tend to plow a lot of their money into businesses -- from family operations to blue-chip stocks -- to say nothing of shopping trips and travel. In other words, cutting their after-tax income could deal another blow to an already-hobbled economy.

The problem would only be compounded by Obama's stand on capital-gains and dividends taxes -- he'd hike them both. He also would institute a more onerous estate tax than McCain would.

It's almost as if Obama wants to repeat the mistakes of Herbert Hoover. During the Great Depression, Hoover raised the top marginal rate to 63% from 25% and hiked corporate taxes, too, says Michael Aronstein, chief investment strategist at Oscar Gruss & Son in New York. The moves siphoned needed investment capital out of the markets and into the hands of bureaucrats, delaying the turnaround.

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