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
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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Published in: on March 2, 2008 at 12:00 am  Comments (6)  
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6 CommentsLeave a comment

  1. Your points about economics and taxes are excellent. Personally I have been in the lowest tax bracket for the last few years, but that is not the Governments fault and I certainly do not think my personal economics means that the persons on the other end of the spectrum should be brought down with me!
    However Obama appeals to this class warfare that achieves nothing.

  2. This is a great article. It is of course a waste of time because you are trying to fight liberal thought with facts. This never works.

  3. It does seem that some people have a particular aversion to facts. They don’t much like logic, either. And math is so inflexible. It hardly seems fair that 2+2 should have to be 4. Perhaps we could come up with some sort of compromise where 2+2 is sometimes 4, but sometimes it’s something warm and fuzzy, like a bunny rabbit…

  4. Trying to discuss economics with a liberal is more painful to me than discussing it with my daughter, who is almost 2.
    We are in the midst of a credit crises and inflation crises that were both caused by low fed rates. What is the cure? A rate and foreclosure freeze as promised by the democrats!!!!!! No wait, lets be bipartisan and throw 600 bucks at people so that they can make half a mortgage payment later this year!!!!!!!

    I’m having visuals of someone trying to put out a forest fire by tossing dynamite at the thing.

  5. It’s my firm belief that economics should be taught in elementary school, starting in first grade, along with logic, reading, writing, and math. These are the basics.

    Too many people in this country don’t have the vaguest notion of the most fundamental principles of economics. If they did, we wouldn’t be in the situation we’re in now.

    If children were taught logic as soon as they started to go to school, maybe they’d grow up at least knowing how to analyze “information” and draw a distinction between what feels good and what actually makes sense.

  6. […] presents Obamanomics posted at Government is Not Your […]

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