Today’s lead WSJ editorial examines the impact an Obama administration would probably have on job creation. His tax plan would certainly be an obstacle to business growth.
In the famous Joe the plumber encounter, Obama tried to sidestep Joe’s objection by saying that most plumbers don’t make over $250,000 per year.” Does he not understand how Subchapter S corporations work? The company itself it not subject to tax, but the shareholders are. If the firm has even modest success, it is apt to earn over $250,000. That amount will be imputed income to the shareholders on a pro-rata basis. They don’t actually receive all that money; typically, the company pays out dividends sufficient to cover their tax liability. If income tax rates rise for “the rich” the company has to pay out more, diverting funds that could have gone into investment into federal tax payments instead. Not a good way to “grow the economy” as Clinton used to say.
And even if there are businesses that wouldn’t be affected by the proposed income tax hike, that’s beside the bigger point. By soaking up more wealth from the private sector, there must necessarily be less demand for the goods and services businesses produce (unless they do business with the federal government). What Obama seems oblivious to (and McCain unable to explain) is that there is an opportunity cost to increased taxation, whether of only “the rich” or of everyone, namely the uses to which the money would have been put by the people who earned it. The money would have been spent or invested somehow; taxing it away increases the ability of politicians to spend but decreases the ability of people and businesses to spend.
