Friday, October 31, 2008

Simple Economics Differences: Talking Turkey

Check out the Obama Tax Cut Calculator here.

The following post is one way to understand bottom up tax cuts. It's very important that the false notions of trickle down are discredited because even as I canvass I routinely run into people who make far less than the $250K line, yet feel that Obama is going to tax them "some day" when they finally earn a lot of money. They are actually voting to increase their taxes now on their smaller income with the hope that some day they will earn more money and will then have a lower tax burden. Clearly that idea makes no sense, yet that is how effective the "fear of taxation" rhetoric of the Republican party has been!

Enjoy this little piece. I thought it was great.

Forwarded from the Obama email list:

A simple way to explain the difference and the effect of Barack Obama's middle class tax cuts and John McCain's continuation of Bush's tax cuts for the wealthy.

Under McCain 1 person gets a $10,000.00 tax cut

Under Obama for the same money - 10 people get $1,000 tax cuts

Net result under both plans the total tax cut = $10,000.00

Now McCain's 1 person and Obama's 10 people are thinking about buying a turkey.

McCain's 1 person because they can, would probably just go buy the turkey without giving it a second thought whether they got a tax cut or not - the result is the grocery store sells 1 turkey.

Obama's 10 people may consider buying a turkey a luxury but because of Obama's tax cut they decide it's a luxury they can afford and go buy a turkey - the result is the grocery store sells 10 turkeys.

Now lets look at the grocery store and the turkey. The store makes 1.25 on every turkey sold.

Under McCain the rich guy who got the $10,000.00 tax cut but who could afford to buy the turkey regardless, buys the turkey and the store makes $1.25

Under Obama the 10 people who got the $1,000.00 tax cut and who can now afford to buy their turkeys do so and the store makes $12.50

Because more people benefited from Obama's middle class tax cut the store was able to sell more turkeys and make more money. In addition since more people can now afford to buy turkeys - the store buys more turkeys from the turkey farmer who make more money. And since the demand for turkeys is up, the farmer can increase the number of turkeys he raises which means he'll buy more feed from the feed supplier who makes more money and on and on........

The net result is more of the middle class can afford to buy turkeys and more of the people who sell turkeys and feed make more money. Eventually enough people are making more money that tax revenues go up paying for the tax cuts and helping to reduce the federal deficit.

This is how the Obama plan grows the economy from the bottom up and pays for itself.

Under McCain, the Bush tax cuts remain in place and things stay the same. Only those who can afford to buy turkeys - tax cuts or not - buy turkeys which means less turkeys are sold at the store, less turkeys are bought from the farmer and less turkey feed is sold by the feed supplier. Since no one's making any more money than they had, revenues remain flat at best and no new or additional taxes are collected.

This means the federal deficit continues to increase straining the economy even further which cause the store to close, the farmer to loose his farm and the feed supplier to go bankrupt. But the rich guy still gets his tax cut and the turkey!

Under the McCain plan the only turkey you get is "more of the same" failed Bush economics.


brian said...

Brilliant, but simple example. I wish I had thought of that!

Kansas Bob said...

Unless I am misunderstanding the calculator it looks like anyone making under $150k gets that exact same $1k tax cut.. I kind of thought it would be graduated?

julieunplugged said...

I don't think this is telling us the real numbers, but using the idea as a metaphor for how the lowered taxes for middle class will function in revving up the economy. It is a graduated tax in real numbers.