Obama Prepares to Put His Stamp
on Economy, Tax Code
If you thought the punditry and political speculation would come to a merciful halt after Election Day, you were wrong. The focus has simply shifted from "Who will win?" to "What will the winner do once in office?"
During the campaign, Barack Obama appealed to lower- and middle-income voters with a broad array of tax cuts, rebates, and subsidies. The cost of these tax changes, he argued, would be laid at the feet of the top earners — individuals earning more than $200,000 and families making more than $250,000.
But with the economy in rough shape, it's possible that Mr. Obama's planned tax increases could be delayed or modified. "The most important thing is that we avoid a deepening recession," the president-elect said in a mid-November interview — a possible signal that at least some tax-increase ideas may be off the table in the short term.
Economists on both the left and the right are in general agreement that increasing taxes during a time of economic downturn is likely to further dampen the economy, not expand it. "There's really no dispute that it's harmful to the economy," said J.D. Foster, who studies the economics of fiscal policy at the Heritage Foundation in Washington. "The debate really is just a question of degree," he told CNSNews.com.
Although that "degree" is impossible to project — because the economy has so many variables — it is clear that the threat of higher taxes hasn't brought any holiday cheer to the stock market. "No President-elect in the postwar era has been greeted with a more audible hiss from Wall Street," the Wall Street Journal editorialized, following a string of down days for stocks after Obama's election. "What markets want to see from Mr. Obama is a sense that the seriousness of this downturn is causing him to rethink the worst of his antigrowth policies."
So far, Mr. Obama and his team have been cagey about how much rethinking is going on. And, despite whatever tweaks may occur between now and when actual proposals are put before the 111th Congress, the ideas below are likely to remain the broad outline of the Obama Administration's approach to economic and tax issues.
• Tax cuts/credits/subsidies. Elimination of income taxes for seniors making less than $50,000 a year; creation of a tax credit of $500 to partially compensate some workers for payroll taxes (i.e., Social Security and Medicare taxes); expansion of the Earned Income Tax Credit — a tax "refund" for low-income earners who pay no federal income tax; creation of a mortgage-interest credit to compensate certain homeowners for a portion of what they pay in mortgage interest; continuation of the 10% tax bracket past its scheduled expiration in 2011; elimination of capital-gains taxes on business start-ups and certain other small businesses.
• Tax increases. Expiration of certain provisions of the Bush tax cuts, effectively returning the 33% tax bracket to 36% and the 35% bracket to 39.6% (the brackets in effect under President Clinton); raising the capital-gains tax rate from 15% to 20% for individuals earning more than $200,000 and families earning more than $250,000.
• Estate taxes. Under current law, the estate tax is scheduled to end in Jan. 2010, then return in 2011 with a top rate of 55%. Mr. Obama wants to freeze the tax at the 2009 rate — 45% for those with estates valued above $3.5 million.
• Retirement accounts. Temporary allowance of penalty-free withdrawals of up to $10,000 from retirement plan assets; temporary suspension of age-based mandatory withdrawals (currently mandated at age 70½); creation of automatic workplace pensions (workers would be automatically enrolled in a company retirement plan unless they opt out; companies without a plan would be required to set up a direct-deposit IRA account for the employee).
• Other proposals. Creation of a "savings match" program that would auto-deposit $500 into the account of each family that saves $1,000 (only for families earning less than $75,000); setting up a short-term "emergency energy rebate" of $1,000 for families and $500 for individuals; creation of income-related subsidies for health insurance; expansion of access to Medicaid and the State Children's Health Program.
One issue the Obama proposals don't deal with, at least not yet, is the runaway growth of entitlement spending — a problem that the head of the Government Accountability Office says will ultimately lead to "unsustainable federal deficits and debt." Even in the short term, the incoming administration is likely to face a record federal deficit of nearly $1 trillion in fiscal year 2009, not including the additional spending Mr. Obama envisions. (Total outstanding federal debt now stands at close to $11 trillion.)
As the new administration moves into place, keep in mind that a president can only propose change; Congress must approve it. Generally, that happens only after considerable Congressional tinkering, so the specific policies that will emerge next year remain unknown.
Even so, given the outcome of Election 2008, the die is cast toward increased spending, higher tax rates, expanded government, and more debt. 
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Joseph Slife is a contributing author and editor for SMI. He spent 15 years with Crown Financial Ministries, co-writing articles with Larry Burkett and serving as executive producer for broadcasting. In addition to his work with SMI, Joseph is an adjunct instructor in the Dept. of Communication at Emmanuel College in Georgia. |
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