Friday, October 24, 2008

The 5% Solution

There has been a lot made about Barack Obama's plan to give 95% of Americans a tax cut if he's elected President. There are a number of problems with this proposal, but there's one that hasn't been considered at length yet.

Let's say for the sake of argument that Obama wins and gets his tax cut proposal through Congress. That would mean that the top 5% would see their taxes increased, and the funds from that going to people who didn't earn the money being given to them. At some point, the rich may ask themselves whether it's worth the cost to stay here. If they try to move their funds overseas, the Obama plan would tax them for doing it. That leaves them another option: getting out of the economy.

Granted, most of the 5% being taxes might not choose this option, but imagine how much money would be out of circulation if even 5% of that top 5% were to opt out of the economy. They could cash out, find a place to live (if they don't already have one), and simply live off their fortunes. Without that tax money, the government would find itself in a financial struggle.

Let's also remember that the Obama tax plan would raise taxes on corporations. Simple economics tells us that the corporations would most likely pass the higher taxes onto their customers, which would increase the prices of everything. But the damage goes further than that.

Take WalMart, for example. With higher taxes causing higher prices, some of WalMart's customers may not be able to afford the goods and services they provide. That causes a loss of business, which causes WalMart to lose money. To recoup the costs, WalMart would either need to raise prices to make up for the lost revenue or drop costs in the hopes of making up for it in volume. But if there isn't the money to buy up the volume necessary to make up for the lost revenue, they will be forced to raise prices, which will drive customers away. And the vicious circle continues until WalMart goes out of business or until the tax laws are changed.

Once the top 5% of people and corporations are gone, a new 5% gets elevated and the cycle begins anew. How many times do you think it would take before the government reaches a point where taxing the top 5% no longer sustains it financially? And what happens if the dollar takes another nosedive?

Before you vote, I want you to really think about the implications of Obama's tax plan as stated. Don't be dazzled by the prospect of being one of the 95% that he promises will get a tax cut because that money you'll get comes at a price, one that could mean the destruction of the American economy.

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