What Barack Obama’s tax plan will really do
One of the cornerstones of Barack Obama’s economic policy has been his purported tax cut for 95% of Americans and to be honest, John McCain has not done a good job of showing this policy and tax cut for what it really is. While I am certainly not an economic or tax policy expert, The Tax Foundation has an article that plainly shows the tax cut is nothing but a dramatic tax redistribution, which will result in an even more dramatic wealth redistribution..
In Fiscal Fact No. 132, Scott Hodge shows that Barack Obama’s plan will basically help redistribute the wealth, showing his socialist tendencies, from the top 1% of taxpayers to the rest of the country, with larger percentages going to the next 20% of taxpayers, instead of lower to middle income wage earners. He also begs the following questions.
While many Americans may cheer this outcome as just or equitable, this sort of direct redistribution raises some important questions that should be part of a larger national discussion:
- What is the long-term effect on the economy of so few households shouldering such a large share of the tax burden?
- What are the consequences for our democratic system when a majority of Americans are disconnected from the full cost of government? Will that majority demand more from the government because they bear little of the cost?
- Should the tax system be used as a means of redistributing income or simply as a neutral mechanism for raising money for government services? Can a tax system premised on redistribution also be compatible with economic growth?
- The Obama plan assumes little behavioral change from such a large tax hike on high-income workers. Is this realistic or will the higher rates encourage tax minimization strategies and reduced work effort, which will lead to lower tax revenues?
The Tax Policy Center has done the public a service by putting hard numbers on the candidates’ tax plans and bringing a dose of reality to the political rhetoric. While it is easy for the press and voters to consider only “What’s in it for me?,” there are larger issues raised by these findings that deserve more public discussion.
Building on the article from The Tax Foundation, The Wall Street Journal has an op-ed piece on October 13, 2008 that also calls into question the 95% tax cut illusion. What Obama is really planning to do is change the definition of a tax cut to include tax credits.
One of Barack Obama’s most potent campaign claims is that he’ll cut taxes for no less than 95% of “working families.” He’s even promising to cut taxes enough that the government’s tax share of GDP will be no more than 18.2% — which is lower than it is today.
It’s a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he’s also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of “tax cut.”
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:
I will be the first to tell you, I could use some of the redistribution of wealth that is in the Obama tax plan, but that is simply not the way America is supposed to work. Sure, if you make more money, then you should expect to pay more taxes, but not in the measure proposed by Obama. If you want to stifle our economy even more and put a damper on the economic growth our country needs, then go right ahead and require people like the man I work for to pay more and more taxes, just because he has been successful and the business has grown. Put more of a tax burden on him because he has worked hard and paid his dues and see what happens then.
According to The Wall Street Journal, the IRS will be sending out a lot of checks.
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 article also asks another question which may be the biggest question of all. With an abundance of proof available, showing Barack Obama’s tax plan for what it really is, why has the McCain campaign allowed this illusion to continue to be put forth by the Obama campaign, without seriously challenging the plan? They need to take the bull by the horns and drive the truth about this tax plan/wealth redistribution plan home to the American people. Our country depends on it.
That’s my take!
Larry
