Obama Economics: The Future of Investments & the Economy Under President Obama

October 24th, 2008

At the time of writing this, Obama has not yet been elected, but that is only because the vote has yet to take place. In just a few weeks (on Tuesday November 4, 2008), Obama will become the first half-minority man to be President of the United States of America. The US, and the World, will cheer and it will all happen under much fanfare. We all know of Obama by now. We know he makes great speeches and talks a whole lot about change. But what change does he have in mind? The problem I have noticed is that not many of his supporters seem to understand all the changes he intends to make. Obama often speaks about a world that almost sounds utopian… but how does he intend to build this utopia? How does he intend to pay for this utopia? The devil is often in the details.

The changes Obama implements will have an affect on both the economy (your jobs) and your investments (your retirement). I believe many of the changes he implements will also change American society forever (long after he is gone) by creating a society that believes it deserves a good living by default, instead of a society that works hard to earn a good living. So pay attention to Obamanomics. The most important changes Obama will implement deal with the economy; without a strong economy, Obama will not have the finances in place to afford many of his other social programs. So, I will focus this article on his economic and tax policies which will have an enormous affect on the economy and your investments, as well as the government coffers.

Before I start, remember why the USA became a free nation to begin with… due to the taxes imposed on Americans by the British Throne, which became excessive and caused a revolt. In the last century, the USA became the greatest nation on Earth. It has its share of problems, but it still became #1 on the planet! A commoner could become its wealthiest and most successful with enough hard work, determination and a little bit of luck. This ability to transcend social classes from being poor to being rich, has made America ripe with opportunities. Millions of immigrants, often highly educated and motivated, come from around the world to the USA in order to make a better life for themselves. Many come from 3rd world nations, dictatorships and socialist/communist countries, so they can live in a free market country that affords them many opportunities for a better life. This freedom is precious and critical in creating a healthy environment for economic development and prosperity.

I must ask you a few questions now: If you lived in a country where more than half of your earnings go to the government automatically or you’re jailed, would you consider yourself free? If you lived in a country where you are unable to protect yourself, are you free? If you won the lottery and you’re government automatically took MORE THAN HALF, would you consider yourself free?

Okay, so by now you’re just itching for me to get down to it. I think the American work ethic and creativity helped create one of the finest societies on the planet. I also think Obama will wage a war on the American work ethic and a war on successful people. Please read “The Audacity of Deceit: Barrack Obama’s War on American Values”. It’s funny that many parents want their kids to go to medical school or law school, to get good jobs. Why bother? Under Obama these professionals will suffer and be discouraged with tax rates above 50%! Why go through all the extra effort (and debt for schooling), only to be punished by your hard work and success with punitive taxes that leave you with less than half of what you actually earned?

Below is a great list of ten tax changes Obama wishes to implement, quoted from “The Audacity of Deceit: Barrack Obama’s War on American Values”. Below each change, I have left my comment.

1) Increase the top individual tax rate from 35 percent to 39.6 percent.

It could cost the economy billions! This still takes money out of the pockets of successful people and puts it into Obama’s hand so he can spend it, because government doesn’t spend enough money? I think people should be entitled to keep their hard earned dollars and 35% is more than enough for the government to take. Remember, that money would be spent on assets of one type or another (like investments in the economy or houses/boats/consumer goods/etc) and it DOES get circulated back into the economy in an efficient manner by consumers! This is why capitalism has worked so well! The government often waists money in poorly run social programs and money grabs for special interest groups. This will decrease efficiency in the economy and is nothing more than a government transfer of wealth. Let’s create more inefficiencies?!? C’mon… but it gets much worse.

2) Raise the capital gains tax rate from 15 percent to 28 percent.

This is an absolutely horrible idea! Capital gains taxes are incurred on investments! Many millions of Americans have a plan to retire. They have put money into investments so the investments could go up in value enough to afford the luxuries of retirement, without depending on social security. Now only 72% of your profits are actually profits. If you needed $1 million to retire, you will now need your investment returns to be even higher to afford retirement! Do we not want people to be successful and self-sufficient? This is impeding the ability of many to be self-sufficient.

Many companies may not invest in the USA as much because of the inherent capital gains. This will also hurt the stock market. We should be encouraging people to save money and invest, not discourage them! I believe a 0% tax rate on capital gains would spur a LOT of investment in the USA, and a lot of jobs!

3) Increase the stock dividends rate from 15 percent to 39.6 percent.

This is just plain dumb! Stock dividends are one of the primary ways retiree’s earn money! If a retiree was able to find investments yielding 10% per year in dividends, than the retiree would only need a portfolio of $250,000 to earn $25,000 in dividends. Of that amount the retiree would get to keep $21,250 after taxes. Under Obama, that same retiree is all of a sudden forced to take a massive pay cut and live off of $15,100! This hurts the stock market, retirees, and the economy in general. This is really stupid. We should encourage people to invest in companies, not discourage them! This is only discouraging investment in America, once again.

4) Raise the percentage of Americans who pay no federal income tax from 40 percent to 50 percent.

Why, in a time with massive deficits, should more burden be placed on fewer Americans? The social programs are not free! Someone must work for, earn, and pay for these social programs. The same low and lower-middle class families that are voting FOR these programs should bear some of costs! If they believe so highly in the programs, they should be willing to put their money where their mouth is and take it on the chin, especially if its such a good idea and helps people out!

5) Impose a 10 percent surtax on all incomes above $250,000 per year.

Surtaxes on success? My, oh my. Shit, I think we should impose a heavy surtax on anyone who earns less than $15,000… pretty quickly I bet you would see a whole lot of people earning more than $15,000 that didn’t use to… that might actually help more people than it hurts! Want an efficient economy? Placing surtax on success is stupid.

6) Raise the death tax rate to 55 percent for any income past the first $1 million exemption.

With many homes being worth over a million (at least by the time many of us die they probably will be if you think about inflation!), a 55% tax rate is almost abusive. Once again, why save money if it’s going to be heavily taxed when you die? This is one of the worst, as it will cause many successful families to move A LOT of assets OFFSHORE to avoid taxes altogether. Why invest in the USA when it looks like it’s going in the wrong direction? Before there was a little bit of stigma attached to rich people moving assets offshore to avoid taxes. Under a heavy taxes (above 50%!) it would only be smart to move all assets offshore, and there might be a stigma for those that don’t! (Why wouldn’t they, do you think they are stupid? If they want to give money to charity, I’m sure many of them worked their entire lives for that money, and would like the ability to choose (democracy!) where there money goes). I assure you, many families will move assets off shore to avoid the wacky Obama taxes altogether.

Many other nations will now try and lure these wealthy families to come to (and invest in) their nations. If America doesn’t appreciate the middle class, middle-upper class, and upper class, I assure you, another nation will!

7) Raise the minimum wage from $6.55 to $9.50.

Inflation anyone? The cost of everything will rise to pay for this increase. It’s almost a zero sum game for the minimum wage earners and it can only hurt the rest of society with inflation. We don’t need this because American workers aren’t competitive enough on the world stage as it is. LOL, So let’s raise the minimum wage even more, so we can’t compete on ANYTHING. Hopefully all businesses and capital (money) will move elsewhere.

8 ) Raise social security payments by 4 percent for individuals, businesses, or anyone who makes $250,000 per year.

Why even comment on this? More social security? If people don’t earn it, they shouldn’t get it. I agree with having social security for those tough times when people lose jobs/get sick, etc. But should we allocate even more money to social security? We should want social security to help put food on the table, but not give each person a life so comfortable they don’t attempt to go out and get a job if they are able to do so! It should be an uncomfortable time when a person is not productive, and the discomfort should be great enough that the person strives to do all he/she can do to become productive to society once again!

9) Increase the top tax rate from 37.9 percent to 54.9 percent for self-employed taxpayers (who already pay ordinary income taxes as well as self-employment taxes).

Why be self-employed or go out and create a business? There’s just no point to risking your money to start a business. Not only are you hit with massive taxes on earnings, but if you do happen to create a business and eventually decide to sell, the capital gains taxes take a large chunk of the value of the business you created. It’s a massive disincentive to create businesses based in the USA. Now how are American businesses supposed to effectively compete with foreign competitors (with wage slaves) when much of the profit is sucked away to government coffers instead of re-invested into the business? Businesses normally either re-invest the profits into the business or give the dividends to shareholders, but with less actual profits… less spending on new technologies, expansion, job creation, etc.

10) Increase the tax rate on Sub-chapter S corporations (small businesses) by up to 15.3 percent (from a top rate of 35 percent to 50.3 percent).

Another tax rate above 50%. Instantly, almost overnight, many corporations will have to reduce any expansion plans they did have, as much of the profit they were going to re-invest is now in the government coffers instead of the corporations bank accounts. All this WHILE there is a credit crunch? C’mon, I thought Obama would want MORE jobs, not less. Why should companies even put a head office in the USA anymore? It doesn’t make sense anymore with disincentives like this.

How can the USA consider itself a free country when it has lost so many of its constitutional rights? Now the right for a person to work hard and enjoy the fruits of his/her labour may disappear under heavy taxes. When more than 50% of your hard earned dollars go to the government, it is NOT a free country! I contend that in a free nation, a government does not take MORE THAN HALF of your earned dollars.

I thought this was interesting: Even Russia is doing a better job at some things than the US. If I didn’t tell you what country it is that is doing the below tax rates, you would never guess:

• The tax system in Russia underwent a comprehensive reform in the year 2001. This reform is designed, in principle, to ease the tax burden on individuals and companies and to simplify the classes of payments for national insurance.
• Russia has a uniform rate of tax on the income of individuals. As of 2008 tax in Russia is payable at the rate of 13% for an individual on most income. (non-residents 30%). Russian residents pay 9% on dividend income. (Deduction at source). Non-residents pay 15% on dividend income.
• Exemptions are granted to certain income earners.
• The standard rate of Russia corporate tax in 2008 is 24%.
• http://www.worldwide-tax.com/russia/russia_tax.asp

If American’s don’t appreciate their successful citizens and the government’s real role in society, there will be consequences. The government has made most of the major problems, including the legislation that ultimately created the housing bubble. Governments can seldom manage their own finances, and yet they want to take MORE of your money out of your hands and “efficiently” transfer the wealth around? It doesn’t work that way, especially when they plan on transferring wealth from productive peoples to unproductive ones… that in and of itself creates inefficiencies.

Here’s what I think will happen. Obama will introduce all his new taxes during a recession. He will make things worse, but will get no blame for it, as most people will blame the previous government for the entire recession. Businesses will get hurt by higher minimum wages (and HIGH inflation!!) which make them even less competitive with other nations around the world, further increasing the need for outsourcing. The businesses that do manage to remain profitable will get slammed by higher taxes, which means less profit to re-invest in the business, the economy, and the owners pockets (shareholder’s often include pension funds, and individual investors retirement accounts!). A lot of baby boomer’s that wanted to retire will no longer be able to do so, due to higher taxes on their investments, income and combined with lower stock prices thanks to both the tax policies and the recession.

Obama will then go on to introduce many of his social programs that will create an entire generation of Americans who expect the government to take care of them. So as government is bringing in less money due to a recession and stupid tax policies, it will begin to spend more. The dollar will suffer. National debt will continue to sky rocket into the stratosphere. America will be less competitive.

Meanwhile, the rest of the world will be split. Some nations will follow the lead of the Americans and create very socialist societies, while the other nations that see the errors, will capitalize (pun intended) on America’s mistakes and try and lure the capital, head offices, and assets of American families and corporations. If America doesn’t want the corporations and wealthy families, another nation will. All this will occur, because as many people forget, government did not make the USA powerful and successful, it merely laid the foundation for the PEOPLE to make it successful. Other nations can lay that same foundation and corporations and people will move!

I love America, but I hate the road its going down and can no longer invest my money in America until this socialist agenda is stopped. That’s right. I will NO LONGER invest in America as long as things are headed down such a bumpy road. I hope to one day be able to begin investing in America again, but that won’t happen until America goes back to the constitution and realizes what governments role should be.

Take the Obama Test and see if you agree or disagree with Obama’s policies. He does great speeches on change, and change can be good (or bad)… but change has to be defined!! Right now most American’s badly want change, but I fear they will vote for a change they do not fully understand. At least take a look at the specific changes he will implement before voting, then make an informed decision about whether he is going to implement the changes you want or not. Oh, what’s the use… we already know he won the second he showed his face, regardless of his policies. At least this article might show some of the consequences to his economic policies. Obama is a socialist, bad for business, investments and the middle class.

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