Obama Is Bad for the Economy - Barron's

by: SA Editor Eli Hoffmann August 24, 2008 | about stocks: DIA / SPY    
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When it comes to assessing the implications of John McCain's and Barack Obama's tax plans, the vast majority seem to side with Bank Credit Analyst managing editor Martin Barnes: "There are attempts to make the Obama-McCain difference big; but they are not that big, really."

Barron's Jim McTague begs to differ. "The vast majority... is wrong."

Obama would have the top 1% of income-tax payers handing over an average of $93,700 more - to $652,900. McCain would reduce the group's taxes by $48,860 to $510,320. While appealing, it fails to address the impact such a blow to the super-rich's disposable income could have:

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.

Investment strategist Michael Aronstein notes a similar plan, implemented by Herbert Hoover during the Great Depression, sucked "much-needed investment capital out of the markets and into the hands of bureaucrats, delaying the turnaround." Looking ahead ten years, the difference between the two is far from insignificant. Obama would siphon about $800B out of corporate coffers, while McCain's plan would reduce the government's take by $600B.

Analysis by independent economist Allen Sinai measured the impact of the Bush administration's tax cuts: Without them, GDP would have been 0.7% less each year from 2001-2006, and unemployment would have been 1.2% higher.

Wachovia chief economist John Silvia notes corporate and capital-gains tax hikes would impede foreign investment once the world gets wind that it's more expensive to do business in the U.S.

All this is not to say that an Obama win spells sure disaster:

Obama could get lucky... Oil prices could fall to $50 a barrel, or a Tom Edison might turn crab grass into jet fuel. Better yet, Obama, who's no dummy, might think twice about raising taxes during the worst financial crisis in 78 years.

:::::::::::::::::::::::::::::::

  • The Tax Policy Center recently updated its analysis (.pdf) of the fiscal implications of the candidates' tax proposals. In both cases, the impact on the national debt would be greater than under the Center's previous model.
  • Anton Wahlman claims fear of an 'Obama-tax' is leading smaller and privately-held companies to sell themselves now, rather than infusing more capital or going public.
  • Roger Ehrenberg's open letter to the next U.S. president.
  • See Seeking Alpha's elections page for more right hooks and left jabs.

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This article has 78 comments:

  •  
    Aug 24 09:31 AM
    There is a question that begs to be asked: if the other team is so great, how the heck did we end up in "the worst financial crisis in 78 years" in the first place?
    Reply | Link to Comment
  •  
    Aug 24 10:09 AM
    The answer to Proud Alien's question is simple. It is "Fraud." With its claim to "compassionate conservatism" the Bush administration was fraudulent from the beginning. It has been neither compassionate nor conservative and never had any intention to be either one. It is and has been a money grab for the rich under the delusionary notion that what is good for the rich is good for everybody through the dubious notions of "trickle down economics" as claimed by Barron's,cowboy free market capitalism as practised by Enron and oil inspired military adventurism as practised by Bush, Cheney, Rumsfeld and the neo-cons.

    The events of 9/11 turned a politically opportunistic fraud into a criminal enterprise, in which the administration bent and/or broke the rules, not to save the country, but to save its own skin. Bush, Cheney, Rumsfeld et al thought they could practice the art of deception sufficiently that they would go down in history as the Churchhill's of their time. Instead, they will go down as the Napoleon's, who everestimated their own capacity and righteousness, deceived the people they were sworn to serve, overreached on the international stage and underreached at home where it really counts.

    Unfortunately, unlike Napoleon, they will not wind up confined to rocky islands. They will live lives of wealth, pomp and circumstance while the American people try to find their way back to an ethic that is more productive than greed.
    Reply | Link to Comment
  •  
    Aug 24 10:53 AM
    I commend Barron’s for pointing out the folly of increasing taxes on our super-rich, as would occur under a President Obama. One needs only to perceive the bonanza our country has reaped since going from the tough economic years of the Clinton presidency, to the years of across-the-board prosperity we’ve enjoyed during the presidency of George W. Bush, to see how foolish such an action would be.

    And why increase the tax burden on the very ones among us who have brought us this economic cornucopia? Take John McCain, for example. He’s wealthy, but why increase taxes on him? After all, he must have arrived at this wealth by way of growing a business and hiring people as he went along, and we wouldn’t want to stultify his entrepreneurial acumen that has brought economic benefits to all. The McCains could have sat on their wealth and clipped bond coupons or something – but, instead, they had the courage to venture into real estate and now own 7 (or is it 10?) homes. Think of how this has stimulated the real estate economy! So we as a country don’t want to hobble such “family operations” or cause our super-rich to curtail their “shopping trips and travel” – it would just be counter-productive.
    We shouldn’t tax the wealthy at all – think of the added jobs we’d create if the super-rich had all that additional money to plow into their businesses, buy blue-chip stocks, go on shopping trips and travel – and prime our economic pump as they went along!
    In fact, a properly-incentivized tax code would SUBSIDIZE the super-rich: not only should they pay no taxes, but we should grant tax REBATES in direct proportion to their wealth.

    Think of all the jobs we’d create … wake up, America!
    Reply | Link to Comment
  •  
    Aug 24 11:19 AM
    McCain has been bought and sold for way too long in Washington. He is way to far in the rich world, in order to relate to the American. His background in military is a non-starter. We can no longer play empire or police state, because we don't have the money for it, and we are centuries behind on free health and education. Granted who the hell cares about spreading ourselves internationally. Why feed the War machine of the defense companies and Big Oil with made-up storied about Bad Russia or Bad China, when the media abroad consistently laughs at our sensationalist stories? So many of our people still live in ghettos, where thugs and drugs rule. Our standard of living has been going down since 1999. This is because of bad decisions on another privileged, rich boy - Bush. It is time to elect somebody who will invest in American people. The management of the companies, the rich are so drunk on paying themselves exorbitant money, that this illusion about how taxing the rich- will hurt the economy - is a dirty lie.
    Reply | Link to Comment
  •  
    Aug 24 11:32 AM
    The Great Depression: a time in the history of the United States when the regulatory and tax burden on businesses and wealthy individuals was so great that they essentially went on strike (or stayed on the sidelines, if you prefer), with the result that the economy did not come out of the downturn started in the late 1920s and early 1930s. The economy was run by FDR and his extensive staff of academics who proceeded to run some very creative and usually ineffective and often disastrous experiments on the American economy. Centralized planning was all the rage, the idea that a few brilliant people with all the control could govern everything if they were just given enough power and taxpayer money. Benito Mussolini's Italy and Stalin's Russia were widely seen within the government of the way things could be, and the popular Walter Winchell said that FDR should assume dictatorial powers (only temporarily of course) in order to get the country out of its problems. Politically the Democratic Party had solid control of the executive and Congress. The only thing in their way was the Supreme Court, and this was remedied by FDR's proposal to pack the court, to allow him to add several more justices, on the clearly false grounds that the older justices were having trouble functioning (the Michigan Democratic Party is trying something similar here in 2008). The Depression went on, and was not remedied until the start of World War II, when Roosevelt had the choice of continuing to fight business and the wealthy or to fight the Germans. He chose to fight the Germans. Business came back to the fold, the experimental academics were sent packing, and the country, though ill-prepared for war, was able to gear up and eventually defeat the axis powers.
    Reply | Link to Comment
  •  
    Aug 24 11:49 AM
    As a European oberving what I hope is a temporary but obvious decline in the American economy I must say that anyone wishing for a continuation of Bush´s policy´s including his tax cuts is out of their mind .

    America became the great counrty it was by allowing wealth to trickle down to Main Street to invigorate the enconomy . America will not thrive by the rich buying a bigger yacht or other extravagance but rather by directing tax revenues to when they do most good - Main St and the other 99 %. This IMHO is what ailes the American Economy at present and is what a Democratic administation would fix .

    As numerous Barrons articles over the years will testify the US stock market does better under the Democrats ,

    why is that Mr McTague ???
    Reply | Link to Comment
  •  
    Aug 24 11:57 AM
    Who cares about the opinions of Barron's and the analysts. They are just cheerleaders.

    Neither McCain nor Obama are on the right track. They are making the same old promises and tax arguements to appease the un-informed electorate. They are not addressing the imminent financial catastrophy born out of the fraudulent business practices of the banking system whose crimes are being covered up by the government.

    They should be rooting out corruption amongst their collegues. Of course, McCain wouldn't hear of that since he got caught with his hand in the cookie jar:

    en.wikipedia.org/wiki/...

    As Alpha Seeker aptly says:

    "McCain has been bought and sold for way too long in Washington."
    Reply | Link to Comment
  •  
    Aug 24 12:01 PM
    I believe Proud Alien is seeing the problem narrowly. BOTh political parties have been seduced by the corrupt environment in Washington. Of course the environment on Wall Street is no better. Imagine a well known "Investment Bank" creating a fictitious "silver deposit" and not only selling shares to investors, but having the chutzpah to charge "storage fees" on a non-existent hoard of silver. The Fannie Mae and Freddie Mac scandals have involved many Democrats (Chris Dodd, anyone?) as well as Republicans. It is astounding that a GSE could spend MILLIONS to lobby Congress while tapping the Federal til. The present "leadership" and membership of Congress will continue the same policies that have carried us to the brink of disaster.
    Reply | Link to Comment
  •  
    Aug 24 12:23 PM
    As one who also flew in Viet Nam, I can tell you folks that McCain's shoot down and POW experience do not make him a hero, they make him unlucky. He, like Bush, is wealthy: Bush inherited his, McCain married into his. McCain seems to only be able to do what is written on the cue cards...even his smiles are scripted (as is plain to see).

    McCain is not a bad guy...he is probably a good old guy and the folks who will come with him (if he is the next President) are going to be the same "good ol' boys" who have been trained by the current Bush Administration.

    In my neck of the woods (North Georgia), you can't go a half mile without seeing some truck, car, or boat for sale in someone's front yard. They are not being sold so that the people can buy a new one...they are being sold so that the people can eat. I don't think folks making $500,000 year and have several homes know (or care) what is going on in the real America. America is HURTIN'.

    When the next international crisis comes up, do you want someone in charge who is waiting for the cue card or do you want someone who can THINK? Does America realize how badly the military is being treated with multiple deployments, extended enlistments, and destroyed families? Our military is like a powerful tank without any ammunition....

    Obama is not perfect, but if the choice is McCain or Obama......it seems clear to me that Obama is the pick.

    Sorry for the long diatribe. I'm just fed up.
    Reply | Link to Comment
  •  
    Aug 24 12:48 PM
    George Bush and the Republicans are completely to blame for allowing the United States to face the possible election of a quasi-socialist Obama this fall.

    And that statement above is coming from a Republican (me) who thinks Bush's fiscal policy over the last 8 years has been a complete disaster. He put the country on a credit card for his two terms and eventually those bills come due. It's as if the Republicans never heard of the word balanced budget. No, they just spend, spend, spend.
    Reply | Link to Comment
  •  
    Aug 24 12:57 PM
    A multi-millionaire stands in front of you.
    Democrats: Oh man, he is so rich, that's so unfair! How disappointing! I want a piece of his fortune. I don't want to rob him, so let's just tax him.
    Republicans: Oh man, he is so rich. How did he do it? How inspiring! I want be like him also!
    Reply | Link to Comment
  •  
    Aug 24 12:57 PM
    Ever since Murdoch took over Barron's, which I used to admire more in the past, the slant to the right is obscene. Obama's plan "to tax the rich" is a serious distortion of his economic plan, and moreover, he is basically bringing tax rates that were reduced. Hardly a true "increase". Obama's economic plan is geared to the majority, something which drives the right-wing conservatives to distortions and half-truths.
    Reply | Link to Comment
  •  
    Aug 24 01:05 PM
    Since a lot of wealth was made based on a dishonest (fractional reserve ) banking system then don't complain when the socialists come to power and redistribute that wealth. It will be a disaster of course; how sad.
    Reply | Link to Comment
  •  
    Aug 24 01:08 PM
    I just love people who pose these crazy rhetorical questions of who would be better for the economy. It is more like they are asking themselves who would be greater for me which stems from each individuals personal economic situation.

    Face it. Neither one of these guys have an answer to our financial woes.
    McCain admittedly knows nothing about the economy and Obama wants
    to give hand outs to everyone.

    I hope one of these guys just has the guts to balance the budget and attempted to move us closer to being LESS energy independent.
    Give me a deficit hawk regardless of party affiliation.

    The GOP was so concerned with Clinton but he turned out to be the best president in a half a century. Reagan was a joke.
    Reply | Link to Comment
  •  
    Aug 24 01:33 PM
    Alex S-

    If FDR's economic policy was "disastrous"... how did he average 8% GDP growth per year? We need more such disasters and less of the GOP's idea of "success".
    Reply | Link to Comment
  •  
    Aug 24 02:21 PM
    Obama is an intellectual lightweight - a silly kid who's enraptured with liberal delusions. Delusions which fester in his left-wing mind from years of sitting in a racist church and advocating marxist social policies.
    Reply | Link to Comment
  •  
    Aug 24 02:30 PM
    So it comes to tweddle dumb and twedle bumber. It doesn't matter who becomes President. Both are bought and paid for. Obama preaches change and goes with "loose lip" Biden for VP who is an icon of beltway insider politics. McCain is no better as an beltway insider. And as for the rich, the million dollart yacht trickles down to main street through the yacht builder, the suppliers to the yacht builder, the workers that work for the yacht builder and the suppliers , the manufacturer of the supplies. All ending up at the local grocery store. That is for those of you that were too stoned or didn't bother to take econ 101. Government never has and never will produce anything but tyranny. The war against poverty goes back to before FDR if you follow history. And since the move away from a Federalist government to a Nationalist style of government the average wage has dissappeared along with the trade of freedom for imagined security. Our economy is in a train wreck and all that politician do is spend money they don't have to pay for programs that are a waste of money. Government here in America is the best money can buy, thats why so many will spend so much money for positions that on paper pay so little.
    Reply | Link to Comment
  •  
    Aug 24 02:43 PM
    JFK Reagan and Bush all cut taxes and after that governent revenues INCREAED not decreased.The problem is that spending especially on entitlements have increased faster. These facts are not political in nature. If Obama suggested tax cuts and McCain raised taxes I would not vote republican like i did in 1992 when i refused to support Bush the elder when he raised taxes. This article is right on
    Reply | Link to Comment
  •  
    Aug 24 02:45 PM
    Bill Clinton raise taxes on the wealthy and it produced the longest sustained economic expansion in U.S. history. He handed Bush a $200 billion annual surplus. Bush immediately reversed Clinton's tax policies and plunged the government back into Reagan-style deficits. He's since added another $4 trillion in national debt while delivering the weakest economic expansion in post-War history and the greatest financial crisis since the Great Depression.

    Republicans understandably never tire of feathering their own nest. But the data are irrefutable: their policies damage the economy, grievously. Another eight years of such policies and we will be a full fledged colony of China.
    Reply | Link to Comment
  •  
    Aug 24 02:53 PM
    Everything Obama promises will throw the world economy into a deep and long depresson. Nothing McCain wants to do will get through Congress.
    Reply | Link to Comment
  •  
    Aug 24 02:56 PM
    Oh, I forgot to mention fractional reserve banking leads to an UNSTABLE economic system. That is why we have booms and busts. Ludvig Von Mises predicted the Great Depression. Does government backed banking cartel sound like the free market?
    Reply | Link to Comment
  •  
    Aug 24 03:18 PM
    I think the Democrats had a big hand (in decades past) in creating the entitlement programs that are now the biggest ticking bombs in the budget - recent deficits pale in comparision to what's coming.

    Re. taxes, on the whole they have the effect of punishing the successful, the productive, and the savers, and rewarding everyone else - this is a road to increasing prosperity? Of course, those on the left always hold up some group that they think doesn't deserve what they're earning - is that what we've come to as a country, using the tax system to vent our envy? If we're going to start voting to take money from people because they don't deserve it, please tell me where I can vote to reduce the incomes of ballplayers, Hollywood stars, and trial lawyers, all big constituencies of the Democrats.
    Reply | Link to Comment
  •  
    Aug 24 04:00 PM
    LOL - Clinton's tax increase produced the longest sustained expansion in US history? Gimmee a break. That expansion occurred in spite of his tax increases. Lessee, as I recall, Soviet Union in collapse, oil prices falling due to a glut, and an unsustainable bubble in tech stocks that popped right before he left office. There's the real source of that expansion, not the higher taxes. How many of those tailwinds do you think we'll be able to resurrect by raising taxes this time?
    Reply | Link to Comment
  •  
    Aug 24 04:23 PM
    The Democrats fight the Republicans and vice versa while the banksters laugh.
    Reply | Link to Comment
  •  
    Aug 24 05:11 PM
    I was going to get a subscription to Barron's. But not any longer.

    Yep, taxing the "rich" is going to hobble our economy. Because taxing the poor and the middle-class over the last eight years (both directly and indirectly - through skyrocketing education, medical and energy expenses) has done so much for the American economy!!

    The Republicans need to go. Before it's too late.

    There's nothing wrong with being rich. But there's a LOT wrong with being greedy and hypocritical. And that pretty much sums up the Republican party. Remember what Bush memorably said? "This is an impressive crowd - the haves and the have-mores."

    A more swaggering cast of feckless, sanctimonious chicken-hawks has never walked across the nation's stage before.

    The Barron's article is utterly pathetic. The last gasp of a pathetic, villainous oligarchy before being stampeded in the storming of the Bastille.
    Reply | Link to Comment
  •  
    Aug 24 05:25 PM
    DougM doesn't like the facts so he mocks them. But they're stubborn things. In addition to the longest economic expansion in U.S. history, Clinton's tax increases on the wealthy 1) produced 22M jobs (vs. <6M for Bush); 2) lowered real long term interest rates by 40%; 3) raised private investment by 2% of GDP (while Reagan and Bush lowered it); and 4) reduced poverty from 13% to 11% of the population (while Bush has raised it).

    Words are cheap, Doug. Where's your data?
    Reply | Link to Comment
  •  
    Aug 24 07:39 PM
    As an self made wealthy individual from India living in America for years now, I cant tell you how much it troubles me to see something so great going up in flames. Much of this board is symptomatic of what is wrong with this country. America is what you want to make of it. Bush is not responsible for American's taking on more credit card debt then they can afford to pay off each month. He is not responsible for the average man / woman signing their name to a mortgage without reading the fine print. In a country where we have the most resources available to us, (especially on education), we should be appalled. We are dumb, lazy, fat and have an excuse for everything and the only effort we put out anymore is pointing a finger at others. Give me somebody from India or China, with far fewer resources but a much stronger work ethic and open view on the world and I will show you 10x the Americans who refuse to change their job skills when they are dated, refuse to take responsibility for their own financial decisions and look to the rich for another bailout. Remember, this latest crisis wasnt called the "rich crisis" but rather the "subprime credit". The only culpability the wealthy have is probably extending an opportunity to the poor who only demonstrated they couldnt handle their existing debts (hence subprime). Look in the mirror folks.....btw...you all voted Bush in twice, not just once.
    Reply | Link to Comment
  •  
    Aug 24 07:39 PM
    Conservatives whine, whine, whine about entitlements. Social Security is probably one of the most successful programs ever put in place-or would have been had Congress kept their hands out of the cookie jar. Medicare could have probably been fixed except Bush put in the Trojan horse of prescription drug benefits, and to smear it in our face, disallowed Medicare to bargain with the drug companies. I always hear the Conservatives rant about destroying FDRs legacy of entitlement programs and they almost have gutted them all-now what?
    Reply | Link to Comment
  •  
    Aug 24 08:02 PM
    TechSavy,

    As the bust deepens, you might change your tune. During the Great Depression the unemployment rate was 25%. This included very many who were not lazy but could not find work anyway. Fractional-reserve banking besides being dishonest leads to economic INSTABILITY. Read von Mises, F.A. Hayek, or Murray N. Rothbard for more info.
    Reply | Link to Comment
  •  
    Aug 24 08:07 PM
    Dems: Tax and spend, Reps: Borrow and spend. Both are getting old.
    How about: "Save and produce" for a change?
    Reply | Link to Comment
  •  
    Aug 24 08:19 PM
    Granted, no matter how much Obama wants to tax the rich, it is too late. You cannot touch them. They know the loopholes, they hire the tax attorneys. They have created this system of complicated taxing and accounting, in which no Big Blue machine can figure out what the rich really pay for taxes. An accountant at Big -5 accounting firm now starts with $55K, without any experience and needs to have Masters degree. This is how complicated and overpaid is this mess in taxation. You cannot touch the rich. They know the loopholes.