Obama Is Bad for the Economy - Barron's

Includes: DIA, SPY
by: SA Eli Hoffmann

When it comes to assessing the implications of John McCain's and Barack Obama's tax plans, the vast majority seem to side with Bank Credit Analyst managing editor Martin Barnes: "There are attempts to make the Obama-McCain difference big; but they are not that big, really."

Barron's Jim McTague begs to differ. "The vast majority... is wrong."

Obama would have the top 1% of income-tax payers handing over an average of $93,700 more - to $652,900. McCain would reduce the group's taxes by $48,860 to $510,320. While appealing, it fails to address the impact such a blow to the super-rich's disposable income could have:

These folks tend to plow a lot of their money into businesses -- from family operations to blue-chip stocks -- to say nothing of shopping trips and travel. In other words, cutting their after-tax income could deal another blow to an already-hobbled economy.

Investment strategist Michael Aronstein notes a similar plan, implemented by Herbert Hoover during the Great Depression, sucked "much-needed investment capital out of the markets and into the hands of bureaucrats, delaying the turnaround." Looking ahead ten years, the difference between the two is far from insignificant. Obama would siphon about $800B out of corporate coffers, while McCain's plan would reduce the government's take by $600B.

Analysis by independent economist Allen Sinai measured the impact of the Bush administration's tax cuts: Without them, GDP would have been 0.7% less each year from 2001-2006, and unemployment would have been 1.2% higher.

Wachovia chief economist John Silvia notes corporate and capital-gains tax hikes would impede foreign investment once the world gets wind that it's more expensive to do business in the U.S.

All this is not to say that an Obama win spells sure disaster:

Obama could get lucky... Oil prices could fall to $50 a barrel, or a Tom Edison might turn crab grass into jet fuel. Better yet, Obama, who's no dummy, might think twice about raising taxes during the worst financial crisis in 78 years.


  • The Tax Policy Center recently updated its analysis (.pdf) of the fiscal implications of the candidates' tax proposals. In both cases, the impact on the national debt would be greater than under the Center's previous model.
  • Anton Wahlman claims fear of an 'Obama-tax' is leading smaller and privately-held companies to sell themselves now, rather than infusing more capital or going public.
  • Roger Ehrenberg's open letter to the next U.S. president.
  • See Seeking Alpha's elections page for more right hooks and left jabs.