It seems like a no-brainer: Raising taxes is bad. It's a shame that Barron's is one of the few outlets to pick up on it.
An economic plan floated out by Democratic presidential hopeful Sen. Barack Obama, Ill., would raise taxes on incomes above $250,000 - with the highest rate at 39.6 percent - and redistribute the wealth to the poor and middle-class. But that would be a big mistake, according to an article by Jim McTague in the August 25 issue of Barron's.
"It's almost as if Obama wants to repeat the mistakes of Herbert Hoover," McTague wrote. "During the Great Depression, Hoover raised the top marginal rate to 63% from 25% and hiked corporate taxes, too, says Michael Aronstein, chief investment strategist at Oscar Gruss & Son in New York. The moves siphoned needed investment capital out of the markets and into the hands of bureaucrats, delaying the turnaround."
Even Don Peebles, Chairman and CEO of the Peebles Corporation - a major fundraiser for Obama - said on CNBC's August 25 "Squawk Box" that Obama's plan needed tweaking. After suggesting he would like to see capital gains rates stay where they are - at 15 percent - Peebles predicted Obama would further lower his proposed tax rate. He's already lowered his proposed increase from 28 percent to 20 percent.
"And I think what we're going to see as this process goes further," Peebles said. "I think we'll see some revisions on the tax policies here."
McTague isn't shilling for Republican presidential candidate Sen. John McCain's proposed taxation plans, noting it that it lacks in progressivity with the cuts. But he showed that Obama's is much worse - as it targets specific groups.
"[I]f Obama's plan prevails, it could well be for the worse," McTague wrote. "While both candidates' proposals have their pros and cons, Obama's appears to have a few too many cons. There's no question about that if you happen to be in the top 1% of income-tax payers. According to the nonpartisan Tax Policy Center, the Obama plan would boost the average tax bill for that group by $93,709, to $652,890. McCain's plan would reduce that group's average by $48,862 to $510,319."
McTague explained that Obama may be unable to avoid this, but he explained why this would be bad for investor's ultimately.
"Because of the budget deficit, now approaching $500 billion a year, the next president, regardless of party, will have his hands tied, many observers say. He will have little choice but to raise taxes and cut spending," McTague wrote. "Obama's tax plans, however, point to a philosophy that historically has worried market pros. Raising taxes on the investor class simply doesn't help investment."