Obamanomics Flunks The Test

Obamanomics Flunks The Test


By INVESTOR'S BUSINESS DAILY | Posted Friday, August 01, 2008 4:20 PM PT

Election '08: Barack Obama the lawyer-organizer could use a crash course in economics. His economic plan's assumptions, based on long-discredited Marxist theories, are wildly wrongheaded.

In arguing for a heavier mix of government, he assumes that capitalism unfairly favors the rich, almost exclusively so, and fails to spread prosperity.

"The rich in America have little to complain about," he carps. "The distribution of wealth is skewed, and levels of inequality are now higher than at any time since the Gilded Age."

Obama cites data showing a yawning gap between the income of the average worker and the wealthiest 1%. He thinks it's government's job to step in and close it — "for purposes of fairness" — by soaking the rich, among other leftist nostrums.

"Between 1971 and 2001," he complains, "while the median wage and salary income of the average worker showed literally no gain, the income of the top hundredth of a percent went up almost 500%."

But such a snapshot comparison would be meaningful only if America were a caste society, in which the people making up one income group remained static over time.

Of course that's not the case. The composition of the rich and poor in this country is in constant flux, as the income distribution changes dramatically over relatively short periods. Few are "stuck" in poverty, or have a "lock" on wealth.

Obama would discover this if only he'd put down his class-warfare manuals and look closely at the IRS' own data.

Take those megarich he vilifies — the top hundredth of a percent. According to a recent Treasury study, three-fourths of them in 1996 fell out of the group by 2005.

Meanwhile, more than half of those in the bottom income group in 1996 moved to a higher income group by 2005, with more than 5% leapfrogging to the richest quintile.

(It's no fluke: The same high degree of income mobility is seen in prior comparable periods, as well.)

Some poor moved up through personal effort, while many rode an expanding economy. Real median incomes of all taxpayers rose 24%, but the poor registered the biggest gains of all.

President Kennedy understood that a growing economy is like a rising tide that "lifts all boats." Obama, on the other hand, thinks some are lifted and others lowered, as if the economy were a system of locks operated by a cabal of evil capitalists.

He also fails to understand how taxes change behavior. He thinks raising taxes on the most productive members of society won't "curb incentives to work or invest." Even TV news anchor Charlie Gibson knows better.

During a primary debate, the ABC host took Obama to task for proposing a doubling in the capital gains tax. History shows, he pointed out, that raising the cap gains rate actually ends up costing the government revenues.

Obama just didn't get it. "Well, Charlie," he argued, "what I've said is that I would look at raising the capital gains tax for purposes of fairness."

Forget growth and revenues. Let's just punish those "greedy" investors. It's the same Marxist reasoning behind his plan to repeal the Bush tax cuts: The rich must be made to pay their "fair" share, Obama asserts.

Never mind that the top 1% of taxpayers already pay 38% of the total tax burden, according to recent IRS data, while the bottom 50% bear just 3% of the load.

Obama's economic plan also calls for mandating a "living wage." He plans to saddle retailers with a $10 minimum wage indexed to inflation, along with a mandate to provide seven days of paid sick leave to workers.

Obama assumes business owners will just eat the added costs.

But restaurants, the nation's second-largest private-sector employer, already operate on razor-thin profit margins. Faced with such mandatory paid benefits, they'll have no choice but to cut staff.

In fact, the last major minimum-wage increase cost the restaurant industry more than 146,000 jobs, the National Restaurant Association says, while restaurant owners put off plans to hire an additional 106,000 employees.

So Obama would get his wage-and-benefits mandate, but lose jobs in an industry that employs the very minorities Obama claims he's trying to help.

"If restaurateurs had their way, every lawmaker would run a small business before starting to legislate," the industry opined in a recent press release.

Lawmakers aren't the only ones. Leftist presidential candidates also could benefit from such a mandate.

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