The economic programs and rhetoric of both major party presidential candidates leave much to be desired, but Barack Obama's tax ideas are truly alarming. For a good summary of what the tax code would look like if a President Obama got his way, see this chart from Stanford economist Michael Boskin:

As you can see, after-tax returns on ordinary income could plummet 32% under the Obama plan, while after-tax returns on capital gains could drop almost 27%. These are not "marginal" tax tweaks but enormous changes to the American tax code, and thus to American competitiveness.

No candidate who cares about American jobs, real wage levels, or health care benefits can seriously propose such penalties on investment and entrepreneurship. Obamanomics would make the U.S. one of the least tax-competitive nations on the planet, pushing jobs overseas, reducing real wages, and making it ever more difficult for employers to provide decent health care, not to mention discouraging the marginal American entrepreneur or innovator from launching or growing a company (aka, employer, health care provider, tax payer) of the the future.

MIT's Technology Review has a great review of a new biography of Georges Doriot (Wikipedia) by Businessweek Editor Spencer E. Ante entitled, Creative Capital: Georges Doriot and the Birth of Venture Capital. Born in France, Doriot fought in World War I, then studied at Harvard Business School, served as director of the U.S. military's Military Planning Division during World War II as a brigadier general, and in 1946 launched American Research and Development Corporation (ARD) as the first publicly owned venture capital firm.

Doriot's legacy looms large today, even if his name is new to most:

Contemporaneously with ARD's watershed investment in [Digital Equipment Corporation], others began walking the trails Doriot had blazed: Arthur Rock (a student of Doriot's in the Harvard class of 1951) backed the departure of the "Traitorous Eight" from Shockley Semiconductor to form ­Fairchild Semiconductor in 1957, then funded ­Robert Noyce and ­Gordon Moore when they left ­Fairchild to found Intel; ­Laurance ­Rockefeller formed ­Venrock, which has since backed more than 400 companies, including Intel and Apple; Don ­Valentine formed Sequoia Capital, which would invest in Atari, Apple, Oracle, Cisco, Google, and YouTube.

Doriot himself would likely have felt at home among today's embattled and outnumbered regulation-skeptics in the technology policy community:

he opposed both the dirigiste political economy of his native France and the tax hikes and anticompetitive laws enacted in the United States under the New Deal. Such regulations, he maintained, arrogated to bureaucrats the function of the markets; their worst feature was that they let government lend money to failing businesses. Ante notes that a former colleague of Doriot's, James F. Morgan, recalled him as "the most schizophrenic Frenchman I've ever met"--devoted to his original land's wine, cuisine, and language even as "the French capacity to make very simple things complicated drove him nuts."

It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer.

That's economist Lawrence Lindsey's bottom-line assessment of Barack Obama's plan to raise the top marginal income tax rate and lift the cap on Social Security taxes. Obama's move would catapult the top marginal tax rate from 37.7% today all the way to 53% -- and that's before state and local income taxes.

Lindsey explains why raising top marginal tax rates yields little revenue but big downside distortions:

the economic well-being of the country is not measured by how much taxes the government can collect, or even the size of the deficit. Rather, it is measured by the country's productive capacity. Our theoretical entrepreneur's 11.2% decline in taxable income reflects both less effort on his part and a less efficient use of his income in order to avoid confiscatory tax rates. Or, to put it directly, Sen. Obama's plan would reduce an entrepreneur's after-tax profits by $70,000 - $56,000 in lost profits and $14,000 more in taxes - just to produce a net revenue gain to the government of $14,000.

But the tax hike story doesn't end there.

Obama has also proposed boosting the capital gains tax to 28%. Combine that with rising inflation, and you get a huge new tax on at-risk capital. Economist Michael Darda explains the risk to both the stock market and overall growth.

Capital gains taxes are set to rise to 20% from 15% in 2010 (with the dividend tax rate reverting to the top marginal income tax rate). Sen. Obama has proposed a bump in the capgains tax to 28% from 15%. A 28% capital gains tax, along with 4% headline inflation, would raise the effective tax rate on capital to 50% from 28%, and lower our model's stimulation of the forward P/E ratio to 12.1 from 15.3. This could cut the S&P 500 down by 15-20%, which would increase the cost of capital, lower the capital-to-labor ratio, retard trend productivity growth, and lower income and wage gains across the country. It simply makes no sense in this context. This is a significant risk looming over the market at a particularly inopportune time.

Effective marginal tax rates on both income and capital gains could thus explode north of 50% in the next few years. In today's hyper-competitive supply-side world, we can't afford such an enormous leap backwards.

Or as Nobel prize winner Bob Mundell says, "I look upon the United States still as the main sparkplug of economic growth in the world." It thus follows, he says, that rescinding the Bush tax cuts "would be devastating to the world economy."

UPDATE: Don Luskin of Trend Macro makes another good point:

Worst of all, even the small contribution to Social Security solvency that Mr. Obama's plan might make is entirely illusory. In fact, the more taxes his plan collects, the worse Social Security's long-term situation gets. That's because all plans based on collecting taxes and saving them in the Social Security Trust Fund for future benefit payments rely on the U.S. government being able to redeem the Treasury bonds that trust fund holds.

There's only one place that the money to redeem those bonds can come from: taxes. So ironically, any tax dollars collected today will have to be collected all over again - plus interest. You like the idea of paying more taxes today for Mr. Obama's Social Security plan? Then just wait 20 years or so, because you'll get to pay more taxes all over again.

Obama's tax bomb is not the way to sustain America's fragile global lead in entrepreneurship and innovation.

Almost 30 years ago World Bank economist Keith Marsden published a groundbreaking study comparing the growth rates of low-tax and high-tax nations. Marsden found that the low-tax nations grew faster. Perhaps not a surprise. But Marsden also found that the low-tax nations increased their government spending three times faster than the high-tax nations. How? Because the low-tax nations grew some six times as fast.

Now, Marsden is back with a new study for Britain's Centre for Policy Studies called "Big, Not Better?: Evidence from 20 countries that slim governments work better. "

When Marsden first compared the high-tax and low-tax nations three decades ago, the worldwide tax-cutting revolution was just commencing. Ronald Reagan and Margaret Thatcher were the leading Western innovators, and although it was not fully appreciated at the time, China's Deng Xiaoping was watching -- and emulating -- the shining example of Hong Kong. So it's fitting, after several decades of global tax-cutting catalyzed today's global boom, to revisit the high-tax/low-tax debate.

Marsden's key finding, now as then, will confound not just high-tax liberals but many "starve the beast" conservatives as well.

Faster economic growth in the first [low-tax] group also generated a more rapid increase in government revenue, despite (or rather, because of, supply-siders suggest) lower overall tax burdens.

Today our friend John Rutledge was at the White House to talk about the importance of retaining the 2003 tax cuts on capital and income.

U.S. Chamber chief economist Marty Regalia, John Rutledge, and President Bush

John did some crucial research leading up to the '03 rate reductions on capital gains and dividends predicting a large boost in the stock market and dividend payments. As this chart of real personal dividend income shows, he was right.

A key to American competitiveness and growth over the centuries has been our friendly treatment of capital and labor. Relative to the world, we've mostly imposed lower tax rates on income and investment and reaped the rewards in terms of the largest economy -- and the largest tax base and most tax receipts.

Moreover, as we substantially reduced tax rates over the last 50 years, federal tax revenue remained basically constant at around 18.5% of GDP. It's an unambiguous argument for low tax rates, and in an article last fall, I called this phenomenon Reynolds' Law after the economist who first noted it, Alan Reynolds.

But not so fast! Today, David Ranson pens a brief article with a great little chart, highlighting the same phenomenon, but says we should call it Hauser's Law after San Francisco economist Kurt Hauser who noted the relationship in 1993.

No matter. The concept is so simple it has probably been noted by others, too. But as the world becomes more competitive with flat taxes flourishing in the former Communist world and tax cuts fueling global growth, from China and Singapore to Dubai and Ireland, American politicians should look at this simple chart that shows they cannot raise more revenue with higher tax rates -- and then shelve their silly high-tax plans.

Reynolds or Hauser, the revenue relationship remains. A tax-cut by any other name would smell as sweet.

Here's part III in Dan Mitchell's series of short videos explaining the theory and evidence of the Laffer Curve, and -- now -- the backward budget scoring system used by the Joint Tax Committee.

If the U.S. wants to remain competitive in a world full of new, large, ambitious, capitalist competitors, we've got to internalize the simple, but crucial, lessons in these videos. Right now, we're headed for a series of major tax rate hikes over the next three years. We need to be moving in just the opposite direction.

It's impossible to prove, but many of us believe the assumption of much higher tax rates under a new president is one factor depressing the stock market and stoking general economic fear and panic. In a world of low-tax capitalist competition, the U.S. needs further significant tax rate reductions, not increases. With the rest of the world following our capitalist lead, a return to high tax rates would be far more damaging today than even a decade ago. Over the last century, the U.S. could get away with all sorts of bad economic policies because most other nations were so much worse. No more. So now, at a critical crossroads for tax policy, along comes Dan Mitchell with a new series of brief videos explaining the crucial, but little understood, Laffer Curve.

Here's episode one, where Dan explains the concept:

And here's episode two, where Dan reviews some of the evidence:

We look forward to episode three. And we anticipate a Best Short Film Oscar for Dan at next year's Academy Awards.

I hate to disagree with my friend Larry Magid, a technology analyst for CBS News, who writes this week in favor of a uniform online sales tax regime. Magid says he "can't think of any good reason why customers of online retailers should shop tax-free while people who spend their money locally have to pay sales tax." Well, I've got a couple of good reasons, Larry.

Back in 2003, Veronique de Rugy [now of the Mercatus Center] and I penned a lengthy Cato Institute white paper on this issue entitled, "The Internet Tax Solution: Tax Competition, Not Tax Collusion." In that study, we addressed the arguments in favor of the so-called Streamlined Sales Tax Project (SSTP) and noted that a move toward more simplified tax regimes was certain laudable. In reality, however, the effort by states to build a "uniform" sales tax regime for online sales was less about achieving simplicity and more about raising taxes and imposing tax collection burdens on interstate commerce. Veronique and I pointed out that this created both economic and constitutional concerns since the SSTP was tantamount to a state-run sales tax cartel:

I have an editorial appearing on CNet News today about "New Mexico's video game nanny tax." Quick background: The New Mexico legislature has introduced a new tax measure that would force consumers to pay a 1 percent excise tax on purchases of video games, gaming consoles, and TVs. The revenue generated from the game and TV tax would be used to fund a new state educational effort aimed at getting kids out of the house more. True to the aim of the measure, they have even given the bill the creative title, "The Leave No Child Inside Act." In my editorial, I argue that:

legislators shouldn't be using the tax code to play the role of nanny for our kids. It is the responsibility and right of parents to determine how their kids are raised. Many of us would agree that more outdoor time is a laudable goal. But should the government be using the tax code to accomplish that objective?

I point out that the proposal raises serious fairness questions that makes a constitutional challenge likely since older court cases dealing with other media have also made it clear that public-policy makers are forbidden from using the power to tax in an effort to discriminate against speech or expression that they disfavor. Moreover, on the fairness point:

Why just blame video games for kids not getting enough time outdoors? How about a tax on social-networking Web sites or instant messaging? Many kids are spending almost as much time online right now as they do playing video games. And what about other types of non-digital games that might keep kids indoors? My daughter spends a lot of time playing Sudoku puzzles, for example. Perhaps we should tax Sudoku books, chess boards, and even arts and crafts! After all, the goal here is to do whatever it takes to get kids outside, right? Or is it really just to get kids to stop playing video games?

Read the entire piece here if you are interested.