Obamanomics

We’ve heard a lot about Hope and Change from Senator Obama, but his actual positions on the issues have so far struck me as vague. He almost seems to have become a modern cult figure, with hysterical fans fainting and squealing at his appearances, and all the frenetic excitement he’s generating among the young and ‘young at heart.’ So I decided to visit his Web site and see if I can figure out where he actually stands on some issues.

Naturally, the first issue that drew my attention was the Economy. According to Senator Obama, The Problem with the economy is twofold. The first part of the Problem is that “Wages are Stagnant as Prices Rise.”– As soon as I read that, I thought “Let me guess. He wants to raise the minimum wage.” Sure enough, further down the page, it says “Obama will also increase the minimum wage and index it to inflation to ensure it rises every year.”

Now, those of us who have taken Economics 101 know that’s like a puppy chasing its tail. As wages increase, they drive up the cost of goods and services, which, in turn drives up inflation. Wages being indexed to inflation, this drives up wages even higher, and the cycle perpetuates itself into a never-ending inflationary spiral. Sound like a good idea? Not to a fiscal conservative, perhaps, but the reaction of the average undereducated citizen is “Higher wages? Oh, boy, I’ll get a raise!” And, while Senator Obama may know better, himself, that’s exactly the reaction he’s counting on.

The second part of the Problem with the economy is apparently “Tax Cuts for Wealthy Instead of Middle Class: The Bush tax cuts give those who earn over $1 million dollars a tax cut nearly 160 times greater than that received by middle-income Americans.” Huh? When I read that, I couldn’t help but wonder where Senator Obama is getting his data. 

The Congressional Budget Office releases statistics on the Effective Federal Tax Rates for each year. (The latest figures are from 2005.) The effective tax rates are not the same as tax brackets, but represent the actual taxes paid as a percentage of total gross income from all sources before any deductions, exemptions, credits, etc.

Effective Individual Federal Income Tax Rates
Income Distirbution Catagory	2001 Effective Rate	2005 Effective Rate	Percent Change 2001-2005
Lowest Quintile	-5.6	-6.5	-16.1%
Second Quintile	0.3	-1.0	-433.3%
Third Quintile	3.8	3.0	-21.1%
Fourth Quintile	7.2	6.0	-16.7%
Fifth Quintile	16.3	14.1	-13.5%

The data shows that the middle and lower-middle income distribution catagories have actually received larger effective tax cuts than the upper income categories. So it’s rather difficult to see what Senator Obama is talking about, especially since he didn’t reference any sources for his claim.

Even assuming he’s referring to actual dollar amounts, rather than percentages, it’s hard to imagine that the tax cuts received by those earning over $1 million a year amounted to 160 times (that’s 16,000 percent!) of the tax cuts received by the middle class. It’s true that the top five percent of earners did pay 60.7% of all taxes in 2005 but, in 2001, the top five percent of earners only paid 55.5% of all taxes. That means the wealthiest taxpayers actually paid a higher percentage of all taxes collected in 2005 than in 2001. So how is it they got 160 times the tax cuts that the middle class got? I’m trying to do the math, but it just doesn’t work.

As I said, I can’t help but wonder where Senator Obama got his figures. Perhaps it was a misunderstanding. Perhaps a campaign aide mistranscribed the data, or he misremembered something he thought he had heard. Who knows? Is it important? That depends. Perhaps the actual statistics aren’t as important as the underlying message. But, if so, why quote statistics at all?

Regarding the underlying message, someone sent me a link recently to a very insightful (and entertaining) Modern Fable of Taxing the Rich, written by one of our neighbors to the North. I highly recommend it.

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