Obama and Taxes

Patrick Poole reminds us that Democrats often promise middle class tax cuts; the last one who delivered was JFK. He also observes that Obama’s spending plans can’t possibly be financed by increasing taxes only on the rich.

Obama has produced at least three tax plans during this election campaign. The first two proposed increasing taxes very broadly. The last proposes increasing them for couples earning $250,000 or more, and promises tax cuts to 95% of taxpayers. Why should we assume that the latest is what he’d actually propose in office, and what would emerge from a Democratic Congress? Why should we trust the latest words from someone who has been changing his mind on the issue every few months, and whose earlier plans indicate a strong preference for wide and substantial tax increases?

In addition to Poole’s points, it’s important to remember the following:

  • The top 50% of taxpayers pay 96% of federal income taxes. The bottom 40%, roughly, pay no income taxes at all. Payments to them are not “tax cuts”; they’re welfare payments.
  • Offsetting payroll taxes for the bottom 40%, and increasing payroll taxes on the affluent, does nothing to strengthen the Social Security system, and in fact threatens the social contract on which it is based by transforming it from a mandatory retirement program into a welfare system.
  • The credits Obama would give various middle- and low-income groups would lower their taxes, but raise their marginal tax rates—in some cases, to over 50%. Marginal tax rates are important, because they affect incentives.
  • Here’s a way to imagine the deal that Obama is offering middle- and low-income Americans: “I’ll give you an extra $200 this year. In exchange, if your income rises next year, you give me 50% of the increase.” If you decline, you do without the $200, but you only have to surrender 10% of any increase next year. Anyone who thinks his/her income will rise by more than $500 next year should turn this down.

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