Major candidate's tax plans compared

Greg Mankiw, an economics professor at Harvard, walks us through the following exercise:

Let me try to put each tax plan into a single number. Let's suppose Greg Mankiw takes on an incremental job today and earns a dollar. How much, as a result, will he leave his kids in T years?

The answer depends on four tax rates. First, I pay the combined income and payroll tax on the dollar earned. Second, I pay the corporate tax rate while the money is invested in a firm. Third, I pay the dividend and capital gains rate as I receive that return. And fourth, I pay the estate tax when I leave what has accumulated to my kids.

Let t1 be the combined income and payroll tax rate, t2 be the corporate tax rate, t3 be the dividend and capital gains tax rate, and t4 be the estate tax rate. And let r be the before-tax rate of return on corporate capital. Then one dollar I earn today will yield my kids:

(1-t1){[1+r(1-t2)(1-t3)]^T}(1-t4).

For my illustrative calculations, let me take r to be 10 percent and my remaining life expectancy T to be 35 years.

If there were no taxes, so t1=t2=t3=t4=0, then $1 earned today would yield my kids $28. That is simply the miracle of compounding.

Under the McCain plan, t1=.35, t2=.25, t3=.15, and t4=.15. In this case, a dollar earned today yields my kids $4.81. That is, even under the low-tax McCain plan, my incentive to work is cut by 83 percent compared to the situation without taxes.

Under the Obama plan, t1=.43, t2=.35, t3=.2, and t4=.45. In this case, a dollar earned today yields my kids $1.85. That is, Obama's proposed tax hikes reduce my incentive to work by 62 percent compared to the McCain plan and by 93 percent compared to the no-tax scenario. In a sense, putting the various pieces of the tax system together, I would be facing a marginal tax rate of 93 percent.

It should be pretty obvious that the only people who should legitimately call themselves democrats are either billionaires or poor people; both groups are the only ones that will benefit under Obama's plan. Billionaires are what you could call "recession-proof"and can therefore afford the high cost of social engineering; and if you're poor you have nothing to lose under any tax scheme. It's interesting how businessmen such as Bill Gates and Warren Buffet(there are many other examples) belatedly find the virtue of socialism after they've spent their entire lives accumulating vast sums of wealth in a decidedly un-socialist manner. It reminds me of an aging rockstar who has spent 25 years chasing booze, drugs and women only to become a spokesperson for abstence after their liver has failed.

A filibuster-proof democratic Congress aligned with a President who's scant 2 year Senate voting record that is the most liberal in that chamber will be able to deliver the one-two punch to our wallets, for our own good of course. Surely when Obama speaks of change he really means "redistributive change." When that happens, we can all be equal and poor together.

If the Democrats succeed in keeping the wool over the eyes of the electorate long enough to win the White House and Obama becomes our President, I will respect the office, if not the man. But I would strongly recommend that Senator Reid, Madame Speaker Pelosi, and President Obama read the following essay by somebody who's been there too; and remember that it is "not yours to give."