Truly toxic tax boost

US Democratic party presidential nominee Barack Obama wants to sharply increase Social Security taxes on upper-income earners, righteously declaring that "the rich can afford it." However, the economy can't, says Steve Forbes, editor-in-chief of Forbes magazine.

According to Forbes:

Raising the highest federal tax take on income to over 50 per cent would slam the economy hard by punishing success.

High tax rates have been the principal barrier to growth in western Europe.

High-tax countries such as Germany and France consider themselves in a boom when their growth rates reach an anaemic 2 per cent.

Weakening long-term economic growth seems a peculiar way to meet Social Security's gargantuan obligations to the 78 million baby boomers who are just starting to retire and draw benefits, says Forbes.

Obama's plan is a destructive form of double taxation, explains Forbes:

Money he would supposedly raise from the higher tax will be promptly spent by Washington politicians.

The Social Security system will receive yet another non-marketable IOU from the Treasury Department.

When the Social Security Trust Fund turns in the IOU, the federal government will have to find new money to make good on that IOU: more taxes.

There's another big problem with Obama's risky scheme: The biggest job creators in the American economy are small businesses. What Obama and his ilk don't recognise is that most small businesses are taxed at personal income tax rates. Thus, their profits will be hit by his higher taxes, says Forbes.

Source: Steve Forbes, Truly Toxic Tax Boost, Forbes, September 1, 2008.

For text: http://www.forbes.com/forbes/2008/0901/021.html

For more on Social Security Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=39

FMF Policy Bulletin/ 26 August 2008