Do, or do not. There is no 'try'. - Yoda

Taxing The Base

by Hal_10000

About Obama’s tax cuts:

For the Obama Democrats, a tax cut is no longer letting you keep more of what you earn. In their lexicon, a tax cut includes tens of billions of dollars in government handouts that are disguised by the phrase “tax credit.” Mr. Obama is proposing to create or expand no fewer than seven such credits for individuals:

- A $500 tax credit ($1,000 a couple) to “make work pay” that phases out at income of $75,000 for individuals and $150,000 per couple.

- A $4,000 tax credit for college tuition.

- A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).

Good idea.  I’ve heard the housing market is way undervalued and we need to encourage people to buy homes.

- A “savings” tax credit of 50% up to $1,000.

- An expansion of the earned-income tax credit that would allow single workers to receive as much as $555 a year, up from $175 now, and give these workers up to $1,110 if they are paying child support.

- A child care credit of 50% up to $6,000 of expenses a year.

- A “clean car” tax credit of up to $7,000 on the purchase of certain vehicles.

Here’s the political catch. All but the clean car credit would be “refundable,” which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer—a federal check—from taxpayers to nontaxpayers. Once upon a time we called this “welfare,” or in George McGovern’s 1972 campaign a “Demogrant.” Mr. Obama’s genius is to call it a tax cut.

The Tax Foundation estimates that under the Obama plan 63 million Americans, or 44% of all tax filers, would have no income tax liability and most of those would get a check from the IRS each year. The Heritage Foundation’s Center for Data Analysis estimates that by 2011, under the Obama plan, an additional 10 million filers would pay zero taxes while cashing checks from the IRS.

The total annual expenditures on refundable “tax credits” would rise over the next 10 years by $647 billion to $1.054 trillion, according to the Tax Policy Center. This means that the tax-credit welfare state would soon cost four times actual cash welfare. By redefining such income payments as “tax credits,” the Obama campaign also redefines them away as a tax share of GDP. Presto, the federal tax burden looks much smaller than it really is.

...

There’s another catch: 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.

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.

The good thing is that Obama is probably not going to cut taxes at all.  Bill Clinton promised a big tax cut in 1992 as well, then raised taxes the second he was in office.  Obama is going to be facing a fiscal reality that will simply make tax cuts impossible.

The more I look at these things, the more I wish we’d just throw the entire system out and replace it with a flat tax.  I get sick of these social-engineering tax credits, tax deductions, tax rebates and tax enemas. The purpose of the tax code should be to raise money for the government to run, not to encourage savings, child-having, home-buying, college-going or clean energy.

And as for “making work pay” ... isn’t, um, you know, work supposed to make work pay?

Comments

Posted by on 10/13/08 at 08:51 AM from

And as for “making work pay” ... isn’t, um, you know, work supposed to make work pay?

“From each according to their ability, to each according to their need”

Your mistake is assuming that he meant that work is to pay you, not the government…

Posted by on 10/13/08 at 10:05 AM from

A tax credit for middle and low income persons is a wealthier person’s tax deduction.  Everybody gets something, seems to me.  Why get in a tizzy about it, theres no money anyway.  How can you get upset about what Obama might do when W has spent more $$ than most dems could dare spend.

Posted by Ed Kline on 10/13/08 at 10:45 AM from

A tax credit for middle and low income persons is a wealthier person’s tax deduction

Giving a person or family another persons money outright is not the same as reducing the tax liability of someone wealthier.  The ‘wealthy’ already pay more taxes than everyone else by virtue of making more. This would also be true in the case of a flat tax. But thats not good enough for you liberals. The left disingenuously label the wealthy in this country as ‘fortunate’, as opposed to ‘industrious’, and then want to punish them for their good fortune.
Its simple class warfare. Tell a large voting block ( the middle class) that you’re going to do them all kinds of favors and give them all kinds of goodies, and that really small voting block of lucky rich people are going to pay for it.

This is why I could never vote for a liberal like Obama in a nutshell. He is either too stupid to realize what he’s doing or even worse he is totally aware of what he is doing.
A few months ago I gave Lee a bunch of crap about ‘wasting’ his vote on Barr, but McCain has been such a bitter dissapointment to me, that I am actually considering it myself.

Posted by on 10/13/08 at 10:51 AM from

How can you get upset about what Obama might do when W has spent more $$ than most dems could dare spend.

How does W’s fiscal irresponsibility disqualify one from criticizing Obama’s?

Posted by Hal_10000 on 10/13/08 at 11:50 AM from

How can you get upset about what Obama might do when W has spent more $$ than most dems could dare spend.

I’ve been extremely critical of Bush.  He’s the reason I voted libertarian in 2004 and will do so again this year.

Posted by on 10/13/08 at 12:50 PM from

The left disingenuously label the wealthy in this country as ‘fortunate’, as opposed to ‘industrious’, and then want to punish them for their good fortune.

To me this is what being a modern Democrat is all about. Either you get some kind a freebie or you play Robin Hood to garner favor with those who receive the freebies.

No matter what, you get to punish those who are lucky enough to make something of themselves.

Posted by on 10/13/08 at 02:48 PM from

So, if I do things that the gov’t wants me do do, they will pay me?! Nice.  It looks like I need to buy a house, quit my job and get a lower paying job, buy a new car, put money in a savings account, and have a kid and let daycare raise them.  Sweet!

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