The State of The State of the Union

Last night, Obama gave his State of the Union address. Sadly, due to a scheduling issue I was unable to see the first half. Of what I saw, I enjoyed parts of it and did not enjoy others as much. This blog will center on the financial aspect of his speech.

One of the points Obama made during the address was his firm belief in a graduated tax scale. He detailed a new plan, called the "Buffet plan," which basically says that all families earning over one million annually would be required to pay 30% federal income tax. In addition, this plan would eliminate families that earn that much wouldn’t be allowed to take deductions for mortgage interest, health care, retirement or child care. Obviously, charitable contributions would still qualify for tax breaks.

I like this plan, even though I'm typically a very conservative financial thinker -- that is to say, I support traditionally conservative policies, such as less government spending. However one issue I disagree with is the idea of a flat income tax. I believe that there should be some sort of graduated income tax, based on what you can afford to pay.

Facts back me up on this one. In a theoretical study done by Cornell's Robert Frank, a study was done that proved that higher tax rate for the wealthy did not decrease their spending power. This sounds impossible, but the wealthy who spend millions of dollars on lobbyists for tax cuts would not change their spending practices whatsoever in the event of a graduated tax. This is proven in history -- following the Reagan and Bush tax cuts in the late 80's and early 90's, the unsubstantial amount of excess capital they would have possessed would have provided low utility and satisfaction.

In addition to that, if across the board tax cuts are imposed continuously, the end result (assuming no increase in output exists) is more wealth for everyone, but also a rise in inflation, basically negating the increase in money by having a lower tax rate.

Finally, by having the rich pay a higher tax, it allows the government to have more revenue. When government spends money, it becomes income to a large number of citizens. This pumps money into the economy, to the people who are not wealthy. In terms of spending, the times when tax cuts are applied to the rich, we have seen that the economy will contract. The only fundamental way to increase the economy in terms of spending is to increase taxation on the rich.

Like I said earlier, I typically shade to the right on financial issues, but I think I'm with Obama on this one.
Something I was NOT with Obama on was the way he made higher education sound like a right and not a privilege. It is not. Plain and simple, if every single person who attended high school ended college, a college degree would mean absolutely nothing. And, trade jobs that are typically filled by skilled laborers who have high school degrees would be vacant. That would be bad for the economy.

Another issue on education, Obama called for every single state to require students to remain in school until they were 18 or they graduate. Once again, some students are just A) Not dedicated to learning, B) Do not care about getting a degree, or C) Would be better served by joining the military or a trade job. Requiring students to stay in school is an idealistic idea that sounds good on paper, but would not help our country in the long run. If anything in education needs to be reformed, its the teaching system that allows teachers to get tenure after 3 years, and stop trying. Not fixing the students who will never be successful in the first place.

All in all, Obama made some good points. What was your opinion on the speech?