Living Wage = Death to American Competition

Taken from a remarkably inaccurate site, the official Obama website, as a plan to combat poverty : Create a Living Wage: Obama will raise the minimum wage and index it to inflation to make sure that full-time workers can earn a living wage that allows them to raise their families and pay for basic needs such as food, transportation, and housing.

Looking beyond the fact that his plan is socialist in nature, I want to assess the impact it would have on American competition and the sad truth that it would not really benfit anyone.

If the Unites States were to implement a so-called "living wage" it would further chase away domestic and foriegn investment. Corporations are already faced with tremendous challenges in the U.S. and are willing to examine alternative solutions (ie outsourcing and moving operations) At some point, as the millions and millions continue to ring up, companies will leave. It will become impossible to compete with both freer market countries of the far east and the eastern bloc. Thus, labor market demand will fall increasing unemployment in posistions that are most easily outsourced, HURTING the people that Barack so dearly wants to help.

Barack is confused

So, a couple nights ago I, like usual, decided I would watch the democratic debate to see if anything was worthwhile. (It was not.) My favorite portion of the debate came when the traditionally cottage cheese soft, Charles Gibson began asking about capital gains. Barack Obama had previously stated that he would raise the capital-gains tax to 28% from its current level of 15%. Gibson then asked, "But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent,” Mr. Gibson said. “And George Bush has taken it down to 15 percent. And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?”

Mr. Obama's response reflected his complete and utter incompetence. He responded by stating the need "finance health care for Americans who currently don't have it”

Hold up-- Does he not understand that revenue went up when the capital gains tax was reduced to 15%. That means less of a tax burden on tax payers and greater revenue. I don't think that he understands the concept of the laffer curve or common sense in general.

If he wanted to attack the statistic, he could. It is a pretty simple argument to suggest that changes in capital gains rates drove an increase in the realization of investment profits, but he didn't even make an effort. It concerns me that he seems so unwilling to invest the necessary time to understand the concepts.

The Tax Burden- Obama versus Barstool Economics

Well, I would like to tackle Barack Obama stance on the Federal Income Tax. Mr. Obama claims that the tax burden is currently to hard on the middle and lower classes and the Bush Tax Cuts were unfair.

Here is a blurb from Obama's Campaign site:
Tax Cuts for Wealthy Instead of Middle Class: The Bush tax cuts give those who earn over $1 million dollars a tax cut nearly 160 times greater than that received by middle-income Americans

What is trully comical, is that the percentage cut actually favored by the the lower classes, the dollar amount was simply less because they earn less. Please allow me to introduce my favorite story: (I was introduced to this by the blog of Harvard Economist Greg Mankiw, my apologies to the original author.)

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve."Since you are all such good customers", he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his "fair share?"They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings."I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man, "but he got $10!""Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!""That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!""Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"The nine men surrounded the tenth and beat him up.The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Admittedly, this analogy is not perfect, but is a fantastic way of bringing our tax system to life. And the final paragraph makes light of an important issue, our tax policies are driving corporations and individuals away, and that can and will have a negative impact.

Obama - 0
Reality and Barstool Economics - 1