The Obama Tax "Cut"

I have studied the Obama tax plan and something interesting appears to emerge:

Single folks with taxable income over $116,000 will probably see their taxes go up by 3% on their income over this amount!

The following is how I arrived at this. According to the Obama tax plan:

1) The top two brackets will rise from 33 to 36% and from 35 to 39.5% whereas the other brackets will remain the same.

2) Taxes for families (ie. Married Joint filers) will not increase if they earn less than $250,000. This promise will be difficult to jettison like Bill Clinton did with his "middle class tax cut", because Obama has published it on his web site and it appears in his campaign ads.

But to arrive at the corresponding taxable income bracket for those who don't itemize, take 250,000 and reduce it for the 2008 standard deduction of 10,900 and less two personal exemptions at 3,500 and you get taxable income of 232,100. Since taxable income for single filers is about half that of married filing joint, then 232,100 / 2 = 116,050. I believe this change will be made retroactive to the beginning of 2009.

3) Taxes on lower brackets have been promised a variety of tax credits, although probably less generous than Obama has promoted, at least in the first 2-3 years of his presidency. This is because he will want the economy to suffer from tax increases early in his presidency so he can blame the previous president, then allow time for the economy to recover in time for the election. Later in his presidency he will also grant his tax credit give aways for the lower brackets so he can get credit for doing that right before the next election. Expansion of the earned income credit means that po' folks who pay no taxes, will get a handsome bonus check from those who do.

The good news is that I believe that the stock market has already fallen to reflect this tax on productivity as well as the coming increase in capital gains taxes.

So I believe the stock market will now rise somewhat from its over-correction, but not rise and remain at the earlier levels for 2 to 4 years, depending upon the political situation.

Since Obama may have a "mandate" and will probably control both houses of Congress, I feel certain he will attempt to damage the economy in the interests of fairness, raise the minimum wage, nationalize health care, eliminate the right of workers to silent votes on union ballots, etc.

Also look for massive stealth taxes on energy like Bill Clinton attempted, but this time in order to fight the "global warming" boogeyman. Everyone will pay these taxes indirectly, as part of the price built into everything we buy, and much of the new revenue will end up in the general fund to buy votes.

However this Marxist over-reach, in combination with outrageous Supreme Court appointments, will incur the ire of the voters, and result in a Republican backlash in the Congressional elections of 2010. If the Republicans can take back Congress, then the market and the economy may really take off, in a scenario like we had in 1994.

But we undoubtedly will have extraordinary inflationary pressures once the economy recovers, and the full effect of out-of-control federal spending and borrowing becomes understood. This will lead to an increase in value of real estate, gold, and some common stock. Anyone holding a low rate fixed income mortgage will benefit, since he will be able to repay his mortgage with inflated dollars. But anyone on a pension or holding fixed rate, long term obligations will suffer.

Personally, I can manage my income by reducing my workload and opt for more leisure time, and arrange my finances to avoid the tax and inflation traps, so I am feeling optimistic again!

But certainly, other folks will be glad to pay more taxes because, according to Joe Biden, it is the patriotic thing to do.