Obama’s “Fair” Tax Plan

Two editorials in the WSJ today on Obama’s plans to rob from the rich to pay to the poor. First up is Peter Ferrara who notes that Obama’s plan is to raise rates for just about every federal tax and then give tax credits to those who pay very little or absolutely nothing in income taxes, as long as they participate in different government activities:

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.

Then there is the increase in tax rates:

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.

Nevermind the fact that the top 1% of American taxpayers already pay 40% of all income taxes, the top 10% of income earners pay 71% of the taxes. But lets just add more to their burden while reducing the burden of those who already pay little to no income tax:

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.

The other editorial, written by William McGurn, keys on the Saddleback forum and Warrens direct question to the candidates on the rich:

“OK. Taxes. Define rich. I mean give me a number. Is it $50,000, $100,000, $200,000? Everybody keeps talking about who we’re going to tax. How can you define that?”

McCain joked that 5 million was his standard which basically means he will not raise taxes on the rich NOR the poor. As you can guess Obama is in a completely different ballpark:

Mr. Obama, by contrast, started out much more directly, suggesting that if you make $150,000 or less you may be poor or middle class. A family with an income above $250,000, he went on to say, is “doing well.” And if you find yourself in that category, he’s going to target you for a tax hike — all in the name of creating “a sense of balance, and fairness in our tax code.”

And there you have it. Fairness. If he really believed in fairness then he would reduce the taxes on the rich since they pay the lions share of all taxes in this country. But noooooo:

It’s not about robbing from the rich to give to the poor. Robbing from the rich will do, especially if it’s done in the name of fairness.

McCain said he doesn’t want to take from the rich, rather he wants everyone to get rich. Not Obama tho.

Curt

See author page