Digging into the Obama Tax Plan

By Alan Stewart Carl | Related entries in Barack, Taxes

We all know that Barack Obama is promising to cut the taxes of 95% of Americans, right? Well … that depends on what you mean by “tax cut.” The Obama tax plan is an overgrown field of tax credits, not tax cuts. Why is this important? As the Wall Street Journal explained earlier this week, tax credits are not necessarily dependent on you actually paying taxes in order to receive the credit.

Here’s the political catch. All but [Obama’s] 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.”

Now, I understand that many people believe wealth redistribution is not only economically beneficial but morally preferable. That’s fine. But for those who aren’t eager to move our nation towards a more socialistic model, it’s important to understand that Obama’s “tax cut” is not a decrease in rates. In fact, the Obama campaign can’t even answer what rates will go down. And an analysis by fellows of the American Enterprise Institute concluded that Obama’s plan would actually increase marginal rates (decide the veracity of that analysis for yourself, I’m not a tax expert and cannot independently verify the conclusion).

Under Obama, most of us will likely get more money back at the end of the year and some of us could actually end up receiving more from the IRS than we contribute, but this all has to do with new credits and not new cuts. There is no tax cutfor individuals and families in Obama’s plan. I point this out because it’s important to understand the nuances of the plan. Although Obama has been clear that he’s proposing tax credits, his campaign’s repeated assertion that 95% of us will receive a tax cut obscures the exact nature of the proposal as well as the wealth-redistribution program that lurks just under the surface.

If you support wealth redistribution and prefer credits over direct cuts, then, by all means, vote for Obama. But if you are less sure about such schemes, just realize that your Obama tax cut is actually a credit and it comes with socialistic strings attached. Maybe that’s a compromise you’re willing to make in this election (it’s one I myself might make), but it’s one we should make knowingly.


This entry was posted on Friday, October 17th, 2008 and is filed under Barack, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

23 Responses to “Digging into the Obama Tax Plan”

  1. Rob Says:

    I having trouble following this:

    Under Obama, most of us will likely get more money back at the end of the year and some of us could actually end up receiving more from the IRS than we contribute, but this all has to do with new credits and not new cuts.

    You need a little more info here. If I get back more this year than last, and you call it credit not a cut, what is the difference? Why am I supposed to care?

  2. Alan Stewart Carl Says:

    Rob, because cuts are direct and come out of your payroll tax. Credits are granted you on your tax return. Credits are also usually delivered on a sliding scale based on income so that, unlike with a tax cut, if a credit decreases once you earn $40,000, you might actually end up with LESS money by bringing home $40,001 than you would by brining home $39,999 because you are given a smaller tax credit. With a cut, even if you make more and move up tax brackets, you will still end up bringing home more money. Obama’s credits have an unintentional but defacto penalty built in when you hit certain income levels.

    Credits are tricky business and, as a matter of tax philosophy, I’d prefer just a regular ole’ tax cut.

    Sorry for the brevity of explanation in the post. I didn’t want to overburden it.

  3. Brian Says:

    Alan, I respect your position, and I also was a little distressed when reading that WSJ opinion piece earlier this week.

    But as I looked over the specific credits, I was hard pressed to imagine how any individual or family in an economic position to get a full refund would also qualify for many, if any of those givebacks.

  4. Shane Says:

    Rob,

    Here is a link from CBS news that does a pretty good job of showing the effect.

    http://www.cbsnews.com/stories/2008/09/09/eveningnews/main4433097.shtml

    From my limited understanding of the situation, it is the “refundable” tax credit that can give a person/family a refund check when no taxes were paid.

    Despite Obama’s impressive campaign and presence, it is this pill that leaves me unable to vote for him. Of course, I wasn’t ever much of a fan of Robin Hood.

  5. Jimmy the Dhimmi Says:

    But shane, if Obama wins, you get to take someone else’s money. For doing nothing! Its like getting paid for voting Obama. Don’t you want that?

  6. L Says:

    I am amazed at the voracity of the comments regarding Obama’s tax plan. As I have pointed out earlier, all government programs are a form of wealth redistribution.

    So Jimmy, this happens every day of every year, welcome to a country where people take a stake in the society they live in and not just their immediate property. Actually, that seems to be every rational society.

    Secondly, Obama could raise everyone’s taxes and they would still be relatively low! He could raise everyone’s taxes and still not reach the levels of Clinton or in some cases even Reagan because of the Bush tax cuts. And if you want to claim that tax cuts help our economy and tax increases hurt it you are out of your league, take a look at the last eight years, and the previous eight years. This is NOT solely because of the presidents, but clearly the rhetoric of tax cuts = economic growth does not hold up in all economic states! Geez, tax credit or tax cut, it is just another form of wealth redistribution and economics is a lot more complicated than “Me work harder you cut taxes”

  7. L Says:

    And when I say the last eight years, I am not talking about the recent crisis but the stagnancy of real wages. That hasn’t happened over eight years since as far back as Johnson if not earlier I believe.

  8. John Says:

    Jimmy,

    Why not, my boss, who’s rich, takes my money by making more by paying me less. I feel happy, saying I’m struggling give me more money one way or the other.

  9. Jimmy the Dhimmi Says:

    L

    Roads, bridges, national defense, law & order are all things we share. Even public education is for children only, and to ensure equality of opportunity, not equality of income as an adult.

    You see no moral difference between funding the national guard, and giving away cash payments to individuals?

    he rhetoric of tax cuts = economic growth does not hold up in all economic states!

    Our country is already over-taxed and over-regulated. Compare our economic growth with countries that have even higher tax burdens and regulations and you will see that our GDP growth is almost always higher, and our unemployment is almost always lower.

  10. Moving into Ambiguity « The Square Deal Says:

    [...] but I’m not desiring going back to the old “tax and spend” ways of the Dems. Alan Stewart Carl has looked into Obama’s tax plan and notes that those “tax cuts” Obama talks about [...]

  11. Moving Into Amiguity Says:

    [...] but I’m not desiring going back to the old “tax and spend” ways of the Dems. Alan Stewart Carl has looked into Obama’s tax plan and notes that those “tax cuts” Obama talks about [...]

  12. Alan Stewart Carl Says:

    As I have pointed out earlier, all government programs are a form of wealth redistribution.

    Except that’s not true. It’s not wealth-redistribution to take my money to pay for roads I drive on. Or to take my money to pay for an army that protects me. Or even to take my money to pay for national parks that I can go enjoy.

    Wealth-redistribution is taking my money and handing it directly to someone else. That’s what the word means and it’s just obfuscation to try to define it otherwise.

    Now, as I said, I understand that many people believe it’s ok to take my money and hand it to someone else because, the argument goes, that makes a more stable society which then benefits all of us. I respect that opinion. And I’m not opposed to some forms of welfare. Not at all. I just don’t think welfare should be engrained into our tax code because, as we’ve learned, unmanaged welfare is ineffective welfare.

    It’s important to understand how these tax credits will quite likely work in an Obama administration.

  13. Donklephant » Blog Archive » McCain Goes After Obama on Taxes Says:

    [...] of a man from a party known for the “tax-and-spend” policies of yesteryear. But despite the problems with Obama’s tax plan, the Democrat has so repeatedly pledged to lower the taxes of 95% of Americans that McCain has to [...]

  14. Agnostick Says:

    And this all completely ignores the worst kind of wealth-redistribution there is: Corporate welfare.

    Taking money from the middle class, in the form of taxes, and handing it over to the fatcat CEOs in the form of “tax breaks.”

    “Trickle down?” Yeah, it trickles down, alright… trickles down the backs of the CEOs into the golden parachute sack they’re wearing around their shoulders.

    Agnostick
    [email protected]
    http://marciaford.blogspot.com

  15. Obama, ‘Joe the Plumber’ and Catholic Social Teaching « American Catholic Says:

    [...] Digging into the Obama Tax Plan by Alan Stewart Carl. [...]

  16. DJ Says:

    Isn’t it fun to watch these republicans pissing and moaning about socialist this and socialist that while the scum they loved for the last 8 years have brought more socialism to this country than anyone since FDR. Bottom line, you just don’t want to pay any taxes. You don’t mind rampant socialism for Wall Street and defense contractors…as long as all of the money is borrowed. Conservatives, my ass!

  17. Jimmy the Dhimmi Says:

    Agnostic:

    America has the most progressive tax system in the world. The upper 50% of tax payers pay over 97% of the total tax revenue. The richest 1% of tax payers pay over 40% of taxes; this percentage of total taxes paid actually increased after the Bush tax cuts went into effect. The government got more money from rich people after rates were cut. Your assertion of “corporate welfare” is therefore nonsense. No other country in the world can boast of such progressive statistics.

    Over 40% of the total U.S. population have no tax liability, and if they take advantage of EITC may actually recieve money from the government that they have not earned. Is that not welfare? This will increase with Obama as president.

  18. L Says:

    Jimmy and Alan,

    You guys are lying to yourselves. You pay more taxes than people who pay no taxes, yet we all drive on those roads. You just gave money to poor people because you built roads for them. It does not matter if you use them also. Same thing with schools etc. The only reason this is easier to lie to yourselves about is because you think it is justified by you using the item as well.

    As I just said, this is respected Keynesian economics, not wealth redistribution. Obama and his advisers are much less ideologically motivated and much more results oriented than to redistribute wealth.

  19. Charles Says:

    Obama’s tax plan will destroy the Social Security system.

    Obama says his income tax plan will lower taxes for 95% of Americans. There is just one problem with this, 40% of Americans already pay no income tax. Obama’s response to this is that these people pay Social Security tax. Well, that’s not income tax, but a contribution to their retirement plan. So if he wins and implements his tax plan, for the first time in the history of Social Security, 40% of the people who will get retirement benefits will have paid nothing for them. Social Security will then loose all pretext of being a retirement plan, and will become a national welfare program.

    This will cause Social Security to lose public support in a massive way. Leave Social Security contributions out of income tax plans. If you take some peoples income taxes to pay others Social Security taxes, Social Security will be destroyed forever.

    http://strategicthought-charles77.blogspot.com/2008/10/obamas-tax-plan-will-destroy-social.html

  20. bruce mace Says:

    The fact the economy is a worry on everyones mind should we really trust what the canidates are telling us about their tax policies. Hanlon has been bashing McCain for the last couple weeks but now he starts an attack on Obama’s tax plan. It also has links to a tax caluclator that would show you how much your family would be effected. Interesting read.

    http://www.greenfaucet.com/hanlons-pub/dueling-obama-tax-calculators/91256

  21. The Twin Cities Daily Liberal » Some concerns from a liberal about Obama’s tax policy Says:

    [...] at Donklephant, conservative contributor Alan Stewart Carl quotes the Wall Street Journal: Here’s the political [...]

  22. Treadmill Traci Says:

    Taxes, taxes, taxes… What’s the real story? The government has gotten far too greedy. They keep taking and taking and now they have a problem they can’t just sweep under the carpet. The American people won’t stand for the way this government is trying to run this country into the ground.

  23. kranky kritter Says:

    Good post Alan, great to hear from you. Cesspool of comments though.

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