There is no question that the US is facing major economic challenges. Recession fears are rampant, unemployment is at 9.1%, the housing market is the worst it has been since the Great Depression and the financial system is in turmoil. The obvious first step in solving these challenges is for the government to encourage free enterprise via business tax reductions and credits. Next, government spending needs a solid audit in order to cut the waste and eliminate the pork. A basic understanding of economics makes it clear that these steps will encourage businesses to expand, thus hiring more workers and mending the issues at their core.
Unfortunately, as generations of politicians have done before him, President Obama’s solution has only convoluted the problem and will likely result in far deeper issues down the road. In his effort to pander to the public’s need for instant gratification, Obama has proposed to pay for his job plan by eliminating $467 billion in tax cuts for so called “wealthy Americans”. In other words, a massive tax increase on the very people who provide jobs, security and innovation to the economy. Not a smart move to say the least! Although Obama is trying to soften the impact of the tax increase by creating government savings via spending cuts, the core idea remains futile.
To better understand Obama’s plan, the business negative parts can be broken down into three points.
1. A limit on itemized deductions and certain exemptions on individuals who earn over $200,000 and families who earn over $250,000, which would raise roughly $400 billion over ten years.
2. A proposal to treat carried interest earned by investment fund managers as ordinary income rather than taxing it at capital gains rates, which would raise $18 billion.
3. Eliminating certain oil and gas industry tax breaks that would raise $40 billion.
Obama is currently touring the country in an effort to drum up support for these business-and-innovation-damaging measures. Not to mention, raise capital for the upcoming election season.
Although Obama’s plan does include a payroll tax cut provision, it is unlikely to have much of an effect. The payroll-tax cuts cover the first $106,800 in earnings and are evenly split between employers and employees. Basically this would reduce the portion paid by workers next year to 3.1 percent from 6.2 percent. The rate had been cut 2 percentage points under the terms of a tax deal reached last year set to expire December 31. While these tax cuts are meager and will likely not impact anyone’s bottom line in a significant manner, any tax reduction should be applauded as a step in the right direction.
The jobs creation portion of the plan would include a $105 billion infrastructure proposal for school modernization, transportation projects and rehabilitation of vacant properties, as well as $35 billion in state aid to save teachers’ jobs. While these ideas are noble, it’s obvious they will create a government spending sinkhole that will only result in worse conditions. It’s time for a pro-business leader who understands how things really work, and has learned from the lessons of history.
Lightspeed Financial Services Group LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lightspeed Financial Services Group LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.
Copyright © 2001-2021, Lightspeed, LLC. All Rights Reserved.