NCPA - National Center for Policy Analysis


December 31, 2008

The linchpin of Obama's strategy is a tax cut for the "95 percent" of taxpayers who earns less than $250,000 a year.  In itself, cutting taxes on the middle class isn't a bad idea.  It just won't do what Obama thinks it will.

To "create or save" the 3 million jobs he intends to, Obama must instead focus on the unpopular but necessary job of lowering the burden on those taxpayers who create jobs and spur economic output -- the nation's entrepreneurs.  But most of them are in the top 5 percent of earners -- those whom Obama would cut out of any tax reduction.  This is class warfare with no real underlying economic rationale.

If Obama is serious, he should:

  • Cut corporate tax rates. U.S. businesses pay a top rate of 35 percent on income, which rises to 40 percent when state taxes are added. The average corporate tax in Europe is 24.2 percent, so it is no surprise that many successful corporations are moving abroad.
  • Slash capital gains tax rates. A recent report from Ernst & Young found that U.S. capital gains taxes are already higher than in more than half of the world's top-performing economies. Raising them would only make us less competitive.
  • Not raise taxes on the rich. Those with incomes over $250,000 a year are the most likely to save and invest, and they already pay 48 percent of all taxes.
  • End the death tax. This is a deadweight tax that raises little income but costs a lot.

If Obama wants to be more than a one-term president, he should keep entrepreneurs front and center in any recovery plans he unveils.

Source: "Memo to Obama: Cut Taxes for All," Investor's Business Daily, December 30, 2008.


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