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Monday October 13, 2008 9:11 pm

Obama’s “Fair” Tax Plan

Posted by Sal Traina Categories: Editorials, Elections, Taxes, Videos,



In this video, Democratic Presidential Nominee Barack Obama, tell this plumber that he’s going to raise his taxes, to redistribute his earnings to people in lower brackets. Whatever happened to earning money?

Below is a Wall Street Journal article describing how damaging Obama’s tax plans would be for the country.

Barack Obama’s tax plan is the opposite of supply-side economics. He proposes to raise marginal rates for just about every federal tax. He also proposes a raft of tax credits that taxpayers can receive if they engage in various government-specified activities.

Moreover, the tax credits would mostly go to those who pay little or nothing in federal income taxes. His trick is to make the tax credits “refundable.” Thus, if the tax credit is for $1,000, but the taxpayer would otherwise only pay $200 in taxes, the government would write a check to the taxpayer for $800. If the taxpayer pays nothing in federal income taxes, the government would pay him the whole $1,000.

Such credits are not tax cuts. Indeed, they should be called The New Tax Welfare. In effect, Mr. Obama is proposing to create or expand a slew of government spending programs that are disguised as tax credits. The spending on these programs is then subtracted from the total tax burden, in order to make the claim that his tax plan is a net tax cut overall.

On the tax side of the ledger, the details released by his campaign last week confirm what a President Obama has in mind for our most productive citizens. The top individual income tax rate, for example, would be increased by 13%, to 39.6%; the next-highest rate would be raised to 36%. The top rates on capital gains and dividends would rise by a third, to 20%

The Social Security payroll tax would be raised between 16% to 32% for families making over $250,000 a year. This means that the real returns these people get from their lifetime payments into the retirement program will be driven below 0%, according to my own previous research, which was published by the Cato Institute and elsewhere.

Mr. Obama also wants a permanent federal estate tax, with a top rate of 45%; his health-insurance plan includes a new payroll tax on employers; and he also contemplates several increases in the corporate income tax, including a new so-called windfall profits tax on oil companies.

Then there is the spending side of the ledger. Mr. Obama proposes a fully refundable Making Work Pay Tax Credit, which would have the government pay out $500 to each worker and $1,000 to couples—reminiscent of George McGovern’s 1972 election proposal for the government to send a $1,000 check to everyone.

His American Opportunity Tax Credit would provide a $4,000, fully refundable tax credit for college tuition expenses. His Mortgage Interest Tax Credit would provide a 10% credit—refundable—to offset mortgage interest payments for lower- and middle-income families. His Health Care Tax Credits, which the campaign says “will ensure that health insurance is available and affordable for all families,” include “a new refundable 50 percent health tax credit on employee premiums paid by employers.”

Currently existing tax credits would also become spending programs in the Obama tax program. The Savers Credit would be made fully refundable, and would be expanded, according to the campaign, “to match 50% of the first $1,000 of savings for families that earn under $75,000.” The Child and Dependent Care Tax Credit would be made refundable and expanded to allow “low-income families to receive up to a 50 percent credit on the first $6,000 of child care expenses.”

The Earned Income Tax Credit is already refundable. Mr. Obama would expand it to “increase the number of working parents eligible for EITC benefits, increase the benefits available to noncustodial parents who fulfill their child support obligations, increase benefits for families with three or more children, and reduce the EITC marriage penalty, which hurts low-income families.” In short, welfare spending is to be increased by paying more money out to low-income income tax filers.

The latest Congressional Budget Office data shows the bottom 40% of income earners already pays no income taxes. Indeed, they receive a net payment from the federal income tax system—meaning from the taxpayers—equal to 3.8% of all federal income taxes, because of the refundable tax credits under current law. The middle 20% of income earners, the true middle class, pays 4.4% of federal income taxes.

Overall, the bottom 60% of income earners pay less than 1% of federal income taxes on net. When “tax credits” primarily go to this group in the form of checks from the government (rather than a reduction in their tax burden) it is simply an abuse of the language to call the spending a tax cut.

Consequently, to say, as the campaign does say, that the candidate’s tax plan is a tax cut on net—and that it would limit taxes to 18.2% of GDP—is grossly misleading. The Obama tax plan would sharply increase real taxes. It also would come nowhere near to paying for the massive increases in federal spending he has proposed, including the spending that is disguised in the form of refundable tax credits.

I want to know how wealth distribution is fair. As you see in the article above, the bottom 40% of wage earners don’t pay income tax. In my opinion, his plan is just a way to get votes from these people. Taking more money from the people and businesses that pay our salaries isn’t a way to grow the economy. With his supposed “tax cut” plan, where is Obama going to find the nearly one trillion dollars he needs for his proposed budget? Oh, that’s right, small business owners and anyone making over 250k a year will take care of it. I really wish people would pay attention to what is going on in Europe or any other place that’s experimenting with socialism. It just doesn’t work.




Tax credits are kind of funny. You only get them if you do want the government wants you do, or only certain people get them while others do not.

Straight tax cuts, allowing people to decide for themselves how to spend the money, are preferable, but they rarely correspond with spending cuts. You end up trading a lower tax burden for increased inflation, and inflation will win. Who, incidentally, suffers most from the ravages of inflation?

Why, that would be the poor (especially those on fixed incomes) and the middle class! 

The poor and the middle class don’t have lobbyists, we’re supposed to, they’re known as legislators, but that ship has sailed.  Promise the these people the world to get their vote, and when the legislation hits The Hill the lobbyists and special interests turn into a cash cow for their employers.

It’s an old dance.  No wonder I hate dancing!


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