Obama’s Tax Plan Exposed, The Destruction of Small Business And Why McCain Won the Presidential Debate October 15, 2008

In this third and final debate, the key issue was the economy, primarily the clarification of the tax plan of each candidate.  The key was not those impacted among individual employees, but how businesses would be impacted, specifically small businesses.

Obama, while saying he will only increase taxes on those earning more than $250,000 a year, includes American business in his cross hairs.  And while $250K seems like a large sum, most small businesses operate well in excess of that amount and will be severely impacted.  The distribution of the tax will be uneven and specifically unfair to those businesses that are more capital intensive and have more employees.

In response to our original article, many expressed concern because Obama did not state clearly whether he was speaking of taxing gross or net business income in the debate. Some believe Obama is trying to be intentionally misleading on the issue, so we decided to clarify.

What we have found in our research is that Obama does say, buried deeply on his website, that the amount to be taxed would be the business’ net profit, not the gross receipts.  If it had been gross receipts, that would have shut the doors on many small businesses in America overnight.

Still, there is a major concern with his plan, because what Obama qualifies as a small business is totally suspect. Small businesses, according to the Small Business Administration, have average incomes in the millions of dollars and can employ hundreds. This site provides a summary.

So, if the Small Business Administration data is correct, how can Obama claim that 90-98% of American small businesses would be excluded from his tax increase?  The lie in Obama’s plan is that he is including sole proprietorships which aren’t really businesses; they are just individuals filing taxes that are not on a W2. That includes the maid, a lone painter, etc. These are businesses by tax qualifications only, not true businesses in any sense of the word.  They do not employ anyone, and they do not provide the same benefits to the nation as real businesses which employ people that also contribute to the tax base.

Let’s examine this.

First, Obama attempts to delude people that make less than $250,000 that they will benefit under his tax plan.  The plan, at first, does seem beneficial for the person in a normal job working for a US-based company.  It is true that most of those people do not make more than $250K, so they would get a tax cut.  Great plan, right?  Think again.  How many of these people work for small businesses?  If you do, you definitely should consider how Obama’s plan to increase your employer’s taxes could cost you a raise or even your job.

Second, and most importantly, when Obama speaks of taxing only those that make more than $250,000, he groups in what he claims are small businesses that have a net profit of over $250,000.  He has often referenced statistics stating how this applies to small businesses in America.  These statistics are not only misleading, they are an outright lie and the cornerstone of Obama’s campaign.

Obama states that at least 90% of small businesses make less than $250K, but the huge flaw in that statistic is it includes the sole proprietor.   These people are not making more than $250K on average any more than the average person does in any other job in America.  They are not considered a “business” for any other reason than they do not get paid via a W2 (with automatic deductions).  They do not operate as a true business, they do not employ others, and they essentially are not a business at all in any real sense of the word.

Joe the Plumber and Small Businesses

What we are most interested in are small businesses that provide jobs, and how those businesses will be impacted.  We want statistics that isolate small businesses that employ people, genuine small businesses.

The expert on small business in America is the Small Business Administration.  This SBA does a great job at summarizing the incomes and employment limits for many businesses to qualify as a “small business”.  None are as low as $250,000, some employ hundreds, and all would pay significantly higher taxes under Obama’s plan.

Obama claims that the companies, even though their taxes will rise sharply, will pay lower taxes than under Reagan.  That is a lie as well.  The rate could potentially be well north of 50% if you count Social Security contributions (a point that Obama conveniently glosses over).  Then consider the added expense of health plans (which Obama wants to force upon all businesses).  It is the highest tax rate since the Carter years, and we all know how that turned out…record unemployment.  Tack on the cost of health care and you have a small business disaster waiting to happen.

Why is this dangerous and why is it easy for Obama to mislead the average citizen?  The concept of taxing a business based on its net income sounds good to the average American when you throw out what seems like a large number to most of them.  Most don’t earn that much money, so we are just taxing the rich, right?

Wrong, a company’s net income is not what the proprietors take home.  It is extremely different from earned wages.  It is the money left after expenses for the prior business year, such as salaries paid, equipment depreciated, etc.  Most businesses reinvest large portions of their profits to grow the business, or in some cases, to just keep up with inflation.   If there are no profits, there is no money to invest.

In addition, the distribution of the tax does not take into consideration that businesses are vastly different from one to the next.  Some are more capital intensive, some employ more than others and others operate in areas with a significantly higher cost of living (New York versus Mississippi for example).

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McCain Versus Obama on Free Trade: McCain = McCan’t and Obama = OhMama

This is a continuing series on the Primary Issues of the Presidential Election 2008. | Read Round One: McCain Versus Obama on the issue of Health care. | Round Two: Their take on the Iraq War. | Round Three: Obama Versus McCain on Free Trade. | Part One of Round Four on Natural Resources and Fossil Fuels, here. | In Part Two, we think the Democrats, Republicans And We All Are Misguided. | Part Three: McCain’s Position. Hypocrites Need Not Apply!! | Part Four: Obama Will Save The World, But the US will Go Broke in the Process | Round five: Is the US the Melting Pot or the Stagnation Pot? The candidate’s position on Immigration | Round Six: On the Issue of Abortion | Round Seven: McCain Versus Obama on Social Security: Obama Needs a Fundraiser, McCain Missing in Action | Part one of Round Eight: McCain Versus Obama on National Security, Obama’s Position | Part two of Round Eight: McCain Versus Obama on National Security, McCain’s Position

You have heard this famous cliché many times, we are sure. “There is no such thing as a free lunch”. There is even an acronym for it! TANSTAAFL. Go figure. For an explanation of how the cliché was derived, read the reference link. It is quite fascinating, well, at least interesting, well worth a click anyway.

Our politicians banter about the term “free trade”, but what it means is not exactly clear. Similar to the “free lunch”, it is practically a cliché. Our personal definition would be trade of merchandise between nations without taxes, duties or fees. So, if an item costs $5.00 to purchase from a company in Mexico, you don’t pay $30 because the US government wants $25 in tariffs, you actually pay $5.00!!  This combined with free and equal access, so it is as easy to find and buy our goods there as it is to find and purchase theirs here.

This really does not exist for the individual. We have relatives and friends all over the globe and most nations examine every package sent, even those declared as gifts, and charge fees and duties to the recipients. This is even with our so-called allies. Recently we sent a video collection to a friend in Canada. Its value was $100. They taxed our friend $30 even though it was marked clearly as a gift. 30% is hardly free.

Similarly, when we arrive home from travel to a foreign destination, our bags are searched to see if we have anything to “declare”. If we do, we pay taxes and duties on it. “Free trade” is a pipe dream for the individual.

On a larger scale, free trade provides merchandise from foreign countries at a significantly cheaper price than if tariffs and fees were charged. The questions become, why is it cheaper and what does it really cost us to deliver those cheap goods to our shores?

So called “free trade” has proven to be a double edged sword (what another cliché?). It clearly cuts both ways. It is not always tit for tat.  or even Steven. But we digress.

Fact is, nothing is “free” in “free trade” except the word free, and the lie behind that word has cost America plenty. What America has gained with respect to “free trade” is primarily a lower inflation rate. Just ask Uncle Alan Greenspan. We are able to import vastly cheaper products than we could manufacture in the US, so products are indeed cheaper. Check that $10 shirt in the closet and your $39.99 shoes and see where they are made. We are willing to bet it isn’t in the US.

Most of our cars are manufactured in Mexico, Canada, Korea, Germany and Japan. Most bicycles, clothing, shoes, etc. (and we stress the etc.) are manufactured in China and throughout Asia. The other edge of the sword is that it is no longer profitable to make anything in America, so jobs are lost, but more importantly, the national trade deficit rises as we purchase vastly more than we sell. Perhaps, as our wonderful politicians state, you actually could train people for new jobs, but that would only make them buy more foreign products increasing the deficit even more. Great idea.

The biggest consideration of a huge trade deficit is a weak dollar. The dollar has collapsed versus other currencies since we instituted supposed “free trade” with many other nations. Now, think for a minute. If this were fair, why are their currencies soaring with respect to ours? Because the only thing we have to trade is our dollar!! We don’t make anything else, so all we can do is print money to buy it all!

It is apparent that the gain in lowering the rate of inflation does not compensate those that lost their jobs as a result, and it certainly does not justify our huge trade deficit. If “free trade” were equal trade, the huge trade deficit would not be there! But we do at least have EBAY for those that lost their jobs as a result.

NAFTA, the North American Free Trade Agreement, was drafted for free trade among North American Nations. We cannot possibly cover all the facets and criticisms of this agreement, but it is also covered here. It has caused much of a stir over the years, and whether it was beneficial or not depends on your perspective, but we believe it the least of our problems.

We do not believe in “free trade”. We believe in fair trade. And we do not believe in fairness only for special interests, but for America as a whole. Certainly some businesses benefit strongly from marketing cheap goods in the US Market or exporting their labor to foreign nations, but who pays for that, and just as importantly, who gets paid for endorsing it (lobbyists, government officials)?

Here is an article that clearly defines how badly we are doing on the trade front. We agree completely with the Democratic position here. “In July, the politically sensitive deficit with China increased 16.1 percent to $24.9 billion, the second highest gap on record.

Critics contend the administration has not done enough to combat unfair Chinese trade practices. U.S. manufacturers say the Chinese keep the yuan undervalued by as much as 40 percent against the American dollar. That makes Chinese goods cheaper for American consumers while making U.S. products more expensive in China.”

On an international basis, we must be more restrictive with nations that cheat the United States. China, for example, while they provide cheap products, steals daily from Americans. They destroy American companies with illegally exported products and they cheat wherever it favors them. They market fake companies on our stock markets and steal from our investors by falsifying reporting information with the assistance of the NASDAQ and NYSE. And when one of these companies goes under, and the Chinese criminals make off with the money, no one prosecutes them; the Chinese government lines their pockets and Americans surrender another portion of their retirement portfolios.

Nations that cheat and steal from the United States should not be offered free trade even if it means cheaper products. Those cheaper products ruin US companies, destroy jobs and line the pockets of criminals. It is not that we think fair trade is not an objective we should seek with all nations, but we think our government has severely failed us in protecting us from economic theft by nations such as China that even cheat with 12 year old girls in Olympic Gymnastics. China does not deserve free access to our markets, and US citizens do not deserve to be abused by a government drooling over the evident opportunities for their special interests.

All that said, and now that we have made our opinions on “free trade” and trade in general as clear as we can without a complete dissertation on every possible trade agreement, let’s allow the candidates to have a say. After all, it isn’t we that are running for President.

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McCain Versus Obama: Whose Plan Has You Covered On Health Care?

This is a continuing series on the Primary Issues of the Presidential Election 2008. | Read Round One: McCain Versus Obama on the issue of Health care. | Round Two: Their take on the Iraq War. | Round Three: Obama Versus McCain on Free Trade. | Part One of Round Four on Natural Resources and Fossil Fuels, here. | In Part Two, we think the Democrats, Republicans And We All Are Misguided. | Part Three: McCain’s Position. Hypocrites Need Not Apply!! | Part Four: Obama Will Save The World, But the US will Go Broke in the Process | Round five: Is the US the Melting Pot or the Stagnation Pot? The candidate’s position on Immigration | Round Six: On the Issue of Abortion | Round Seven: McCain Versus Obama on Social Security: Obama Needs a Fundraiser, McCain Missing in Action | Part one of Round Eight: McCain Versus Obama on National Security, Obama’s Position | Part two of Round Eight: McCain Versus Obama on National Security, McCain’s Position

UPDATED: October 11, 2008

We originally came to the conclusion that Obama’s plan for health care was vastly better than McCain’s.  We believed that the money given through a tax credit to pay for health care in McCain’s plan would just provide the opportunity for the insurance companies to raise prices, and that a universally available plan that was affordable to everyone was a great idea. To read our original opinion, complete this article to the end to see where we went wrong.

After we submitted our article, one of our readers pointed out to us that a major part of Obama’s plan is to take everyone into the health care plan, even those with pre-existing conditions, and we started to wonder how that would be paid for and by whom?

Obama’s health plan is modeled after the plan instituted last year in our home state.  Massachusetts’ health plan, within just one year, has clearly demonstrated how completely wrong we were.  The state has instituted the exact same plan as Obama promises. Let’s see how well it has worked.

Massachusetts told us how our health care would get more “affordable” if we forced everyone to purchase health care, but then they imposed a subtle and huge tax increase on citizens of the state.  They required that all insurance companies cover all pre-existing conditions, no matter how serious, no matter how long they have existed and no matter how old the patient is.  Take a second to think about that before you read further.  No matter how long a person has been ill, no matter how old they are, no matter what state or federal government program had covered them in the past, they get to jump on the plan with the healthy and young.  DO they pay more because they cost vastly more to cover?  Actually, it is just the reverse.  The state makes it even more painful by subsidizing the elderly and sick, forcing even more of the expense on the healthy and young.

The promise in Massachusetts was that insurance premiums would drop.  Instead, what has happened is policy prices have skyrocketed 40% in a year as the healthy are forced to pay for the unhealthy and elderly, many that had been supported by state health programs.  It is a great deal for the state, the sick and elderly, and a sharp indirect tax increase on the healthy and young.

Many have insurance through their jobs and thought that they were safe.  But the fact is that their plans have soared in price as well and the companies in Massachusetts are being left with hard choices to reduce their health care coverage for their employees, charge significantly higher contributions to help pay for the healthcare or cut jobs to pay for the massively increased costs.  This burden falls particularly hard on small businesses, the type that Obama says he will help.  He says that he will only impose a tax increase on small businesses that earn over $250,000, but almost any small business with more than two employees meets that criteria, so they will raise their taxes and hit them with the sharpest increase in health care costs in our history.

So, what do the Democrats and Obama hope to gain?  To get the healthy to pay for Medicare, Medicaid and other medical problems the US used to fund through entitlements.  It is a huge tax increase that people just cannot see yet.  We are seeing it clearly and painfully in Massachusetts in only one year!!  The cost for a decent plan in Massachusetts has skyrocketed to $20000 to $24000 a year! There are cheaper plans, but they have HUGE deductibles amounting to thousands and sometimes tens of thousands of dollars.

This is a subtle way to shift the cost of Medicare, Medicaid and government programs to business, the healthy and the young. It also gets the insurance companies to collect the hidden tax.  If you decide that you cannot afford it, or if you legitimately cannot afford it, what do they do?  They penalize you on your taxes.  Massachusetts REQUIRES that you have the insurance or they charge you tax penalties.  Exactly what Obama endorses.

The result?  Insurance companies have raised prices 40% in a year because they know you have to buy their coverage.  Deductibles have soared and coverage for well-care such as blood tests are no longer covered by many plans until a huge deductible is satisfied.  Where is that money going?  To pay for the elderly and sick that can jump on the plans at any time.  In fact, the sick and elderly can even to Massachusetts from other states and jump on board.  It is health welfare paid for by Massachusetts victims, er, citizens.

This is the Massachusetts government mindset.  If they cannot directly raise taxes in the obvious way, they run interference and get you to pay the tax another way.  If you do not believe us, just check out the huge increases in insurance rates in Massachusetts following institution of their plan.  Then realize the disaster it would be if applied nation wide.

Massachusetts lied to its citizens telling us that its plan would reduce health care costs.  Instead, our premiums soared 40% in one year!  It is cheaper for many to drop their health care insurance, pay the tax penalties and just jump on board if they get ill.  This makes the premiums even more expensive.  The state collects extra taxes and defers all their expenses to business, the healthy and the young.

Forcing society to pay massively increased taxes through their health care organization is NOT the way to address Medicare and Medicaid problems.  It is a way to make the healthy poor.  This plan must be defeated even if Obama gets elected.  It is a tax increase of astronomical proportions.

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McCain’s Healthcare Policy Out of Touch With Reality

Senator John McCain has a plan for healthcare that is out of touch with reality because it totally ignores the cost of healthcare, and it does not take into consideration cost of living differences.

McCain’s plan is to offer a $5000 refundable tax credit (what a rebate?) to families to help pay for healthcare. That sounds pretty good until you hear he is including the elimination of the exemption of employer-provided healthcare from income taxes.

Most plans that cover a family cost well in excess of $1000 a month in the US, and sometimes much more in areas that have a higher cost of living. So, if on average, one pays $15000 for healthcare a year and gets a $5000 credit, it would only be marginally different from getting the tax deduction in the first place. Anyone that pays more due to the cost of living would actually pay more taxes because their medical benefit would be taxed as income! This is inherently unfair and could push people towards the Obama camp, especially those in areas with a higher cost of living.

Even some groups that favor better health coverage for their union members are backing away from McCain. The United Mine Workers of America, for example, have endorsed the Democratic ticket specifically for this reason. “Mr. McCain’s plan would impose a tax on health care benefits that have been negotiated into employees’ contracts” said Cecil Roberts, union president.

A more fair plan, if McCain wishes to support commercial health care, is to require an increase in the taxes on profits from those companies providing healthcare. While many people believe that healthcare cost increases have hurt Americans, few have any idea how much they have benefited the US Healthcare Insurance companies such as Unitedhealth Group, Inc. the largest insurer in the US. Unitedhealth Group’s sales have steadily increased while their cost of revenue has dropped. It is good to know someone is benefiting from the high cost of health care, but not if our individual costs for that health care are to be taxed!