The Wall Street Journal, not surprisingly, takes aim at two widely publicized proposals from Democratic presidential candidate Barack Obama. The first deals with Obama's plan to lower the price of oil by going after energy speculators. So writes the Journal:
But there's no inherent reason to "bet" that commodities will go up rather than down. Bet wrong – place all your chips on red, say – and you lose. If a company purchases the future right to buy oil at $140 a barrel and it instead sells for $130, the option is worthless. Besides, somebody has to take the other side of any futures contract: Some are trying to predict where the price will go in the future, while the other side is attempting to sell its future price risk. But no one knows how things will end up. (snip)
One omnipresent talking point is that the so-called "Enron loophole" must be closed. A provision inserted in legislation in 2000 exempted certain oil contract exchanges where transactions were made via computer and telephone, rather than on a trading floor, from regulations that govern other exchange-traded commodities. But Congress ended that practice as part of its most recent farm bill, and there's no evidence that "over the counter" trading has caused the increase in oil prices. The political enthusiasm seems to arise solely from the word "Enron."
Those who wish to blame energy speculation for the rise in oil prices live in a world of fantasy where it must be the bogeyman raising oil prices, not economic forces. But even if the they are correct in their assessment, by definition these speculators will get their comeuppance. If they are indeed buying energy futures at higher rates than the market dictates, at some point the market will correct this, as with the "dot com" bubble burst of 1999-2000. One should point out that Barack Obama has no principled opposition to high gas prices, he just wishes the price would have gone up a little more gradually.
More serious is Obama's plan to "save Social Security," which is really just masking a plan to raise taxes. Obama plans to apply Social Security taxes on households (not individuals) making over $250,000. Donald Luskin writes about this in today's Journal:
One liberal columnist actually noted with glee the fact that this would take us back to top tax rates not seen since the 1970s.
According to the nonpartisan Tax Policy Center, Mr. Obama's new tax would siphon off 0.4% of gross domestic product annually. Combined with Mr. Obama's other tax-hike initiatives, "the total tax on labor would be close to 60 percent. In high-tax states like California and New York, the top rate would be even higher."
Would it help Social Security's financing problems? Mr. Obama has no idea. One of his senior economic advisers admitted to me that no one on the campaign has run any detailed models or performed any rigorous analysis. When one proposes an enormous tax increase, shouldn't there at least be a spreadsheet somewhere? (snip)
Throughout the history of the Social Security program, there has always been a connection between what you contribute in taxes and what you get back in benefits. If Mr. Obama uncaps the wages subject to tax, but doesn't uncap benefits, then he has severed the link between them. Social Security would stand revealed not as a work-related contributory retirement system, but simply as a tax-funded welfare and income-redistribution program.
Read the whole thing for the details. What Obama's plan does is dramatically raise taxes on the most productive, increases labor costs, reneges on the promise of FDR that Social Security would be a pension plan not a welfare program, all the while doing little to nothing to address to Social Security problem. Furthermore, Obama decries the Bush tax cuts, which cut rates for everyone. Would he like to repeal those, further increasing taxes? He also is for raising taxes on capital gains to 28%, nearly doubling the tax rate on investment. With a compliant Congress, we are sure to see a significant increase in our tax burden in a coming Obama administration.
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