Sharing wealth will
drain it
Obamanomics a drag on growth
Jacqueline Thorpe, National Post-Opinion -
Published: Thursday, November 06, 2008
As the fervour fades, the world
will have to get used to a new word: Obamanomics.
It means tax hikes for the rich, tax cuts for the poor and
middle class, a promise to renegotiate NAFTA, greater union power, windfall taxes on oil and gas profits, higher taxes on
capital gains and corporate dividends and more comprehensive health care
coverage.
Barack Obama's economic plan may deliver the greater income
equality Americans have apparently been craving, but also slower growth.
Despite the vast tax hikes, it will cost a vast sum and
The plan is not market-friendly but that does not mean the
markets will not like an Obama presidency. If he can give the
If he can become a Clintonstyle
pragmatist, resist caving to every whim of a deeply left Congress, and not
meddle with the bailouts that seem to be gingerly gaining traction, markets
might even run with his presidency. The year from hell for investors could then
be nearing an end.
Obamanomics is essentially about
taking more money from the rich and giving it to the poor, plain old-fashioned
"neighbourliness" as Mr. Obama has
described it.
Or, as others have remarked, taking money from those who
earn it and giving it to those who don't.
Under his income tax plan, Mr. Obama says he will provide
tax cuts for 95% of Americans. He will do this by repealing Bush tax cuts --
set to expire in 2010 -- and bumping the top rates back to 36% from 33% and to
39.6% from 35%. Individuals earning over US$200,000 and families over
US$250,000 will see sizable tax increases. This includes sole proprietors of
businesses such as lawyers, accountants or plumbers called Joe.
Since 38% of Americans currently do not pay federal income
taxes, Mr. Obama will provide them with refundable tax credits. Under his plan,
48% of Americans will pay no income tax.
"For the people that don't pay taxes, he is simply
going to write them a cheque," says Andy Busch,
global foreign exchange strategist at BMO Capital Markets. "That is income
redistribution at its worst and produces very little value."
Other plans include raising taxes on capital gains and
dividends to 20% from 15% for families earning more than US$250,000. He plans
to leave the corporate tax rate at 35%, which in a world of rapidly falling
rates, looks positively anti-business. He will introduce windfall taxes on oil
and gas companies but offer US$4-billion in credits to
Much has been made of Mr. Obama's plan to renegotiate NAFTA
to make it more labour-friendly, though no one seems
to believe he will actually make it more protectionist.
The bottom line is this: Obama's economic plan is likely to
be a drag on growth and it will cost money. The nonpartisan
financialpost.com/analysis