Obama's "95% will get tax cut" Illusion
The Wall Street Journal writes an extremely fair, helpful, and succinct review of Obama's tax proposals. The author helps readers understand why Obama claims to give tax cuts to 95% of Americans: by "tax cut" Obama includes tens of billions of dollars in government handouts that are disguised by the phrase "tax credit." If you think Obama is somehow better for the economy, this article is a must read. Don't forget to look at the chart. It is not too hard to understand: look what happens at about the $45,000 mark: your marginal tax rate goes up. This disproportionally punishes low-income workers for earning raises or bonuses --cutting off the incentive for achievement and growing one's income:
Because Mr. Obama's tax credits are phased out as incomes rise, they impose a huge "marginal" tax rate increase on low-income workers. The marginal tax rate refers to the rate on the next dollar of income earned. As the nearby chart illustrates, the marginal rate for millions of low- and middle-income workers would spike as they earn more income.Read the whole thing.Some families with an income of $40,000 could lose up to 40 cents in vanishing credits for every additional dollar earned from working overtime or taking a new job. As public policy, this is contradictory. The tax credits are sold in the name of "making work pay," but in practice they can be a disincentive to working harder, especially if you're a lower-income couple getting raises of $1,000 or $2,000 a year. One mystery -- among many -- of the McCain campaign is why it has allowed Mr. Obama's 95% illusion to go unanswered.
Comments
The relevant question is: Is it true that 95% of Americans will pay less tax under the Obama plan?
If you fill out your tax return and find that you have to pay X more dollars in taxes, but you also get a new tax credit of Y dollars, where Y is greater than X, then the net result is that you pay less tax and hence you keep more of what you earn. That makes it a net tax cut, no?Notice that this article does not actually answer that question! Why would the writer omit that detail? Either the writer is incompetent at getting the point across, or, more likely, it really is true that 95% of Americans would pay less tax under the Obama plan, but the writer doesn't want to admit it and therefore has to resort to innuendo to make the reader think otherwise.
A more important question for the WSJ to consider might be whether it would be prudent for President Obama to keep this tax-cut promise, or whether it would make him another reckless borrow-and-spend president, like the incumbent.
"War taxes are the only ones men never hesitate to pay, as the budgets of all nations show us."
- William James, "The Moral Equivalent of War" (1906)
Posted by: Peter | October 14, 2008 03:20 AM
Peter,
I think the distinction is between a tax cut and a tax credit. People who don't pay taxes (over 1/3 of all Americans) cannot receive a tax cut by definition. However, they can receive tax credits--essentially they can MAKE money during tax season (come out ahead). But who pays for this? The "wealthy" Americans who pay taxes, I suppose.
Posted by: Alex Chediak | October 16, 2008 10:23 PM