Friday, August 22, 2008

Tax Plan Comparison

Ok, so I've been on a roll today with politics. That is what happens when it is a beautiful day outside and I don't feel like working.

Anyway, here is a nice article comparing the two plans. The following graph really does a good job of breaking this down so it can be digested.

Just want to point out a couple of things. First, the trickle down economics (or voodoo economics) of the 80's obviously do not work. The McCain camp's argument is the same as Reagan's in that if you provide more money for the rich, they will hire more people and create new jobs and that wealth will trickle down. Obviously that hasn't happened since the gap between the rich and poor has widened so much. When 60% of Americans make less than $66k a year, that's a pretty big gap.

Second, economic stimulus and getting people to spend money in America only works if the money you give back will be spent and will be done so in America. It does no good to tie it up in offshore investments or savings accounts, etc. The people most likely to spent real dollars back into the US economy are those at the lower end of the tax bracket. The people that don't have a lot of material wealth or who are living paycheck to paycheck. You give those people a break and more income, you will end up with more direct investment right back into the US economy since that money will be spent quickly.

In summary, cutting taxes for the lower brackets is likely to have a greater effect on the economy on a whole than cutting taxes for the upper brackets and expecting it to trickle down.

With all of that in mind, Obama's plan focuses more on the lower brackets where it will have a true and immediate effect where McCain's is mostly a kickback to the upper brackets with lip-service to the lower brackets. So when you hear the two candidates and their surrogates talk about tax plans and who is doing more to help out the middle class, just remember this chart.

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