Wednesday, October 29, 2008

FAQ on Taxes

Here are responses to questions we've received repeatedly. Please use these as you're talking to family, friends, co-workers, and neighbors over the next few days in a last push to get them out to vote for Obama. If you have other questions, please put them in comments below, and we'll update this post with responses.

Will Obama raise my taxes?
Your taxes would be reduced under Obama's proposals, if you are single and making less than $200,000 or married and making less than $250,000 jointly. See the tax calculator and assorted links at left. For a detailed description of his tax plan, see this article.

Won't raising taxes on corporations and the wealthiest hurt the economy?
No. Obama would return tax rates to at or below where they were during the 1990s, an era during which the economy thrived, median income grew by $6000, and 22.3 million jobs were created. In contrast, McCain would extend the Bush tax policies, which have brought us 30% lower economic growth, anemic job growth, and a decline in income and wages for the typical American. See details in the slides included in this post.

Won't marginal tax rates increase under Obama, taking away incentives for people to work?
No. Analysis by the fully objective, non-partisan Tax Policy Center shows that Obama's plan would actually reduce marginal rates for most (61%) taxpayers. Marginal rates would increase for only 15%. See discussion and links in this post.

Why is Obama going to cut taxes for the 38% of people who don't pay taxes?
It's true that many people don't pay income taxes. But anyone working pays payroll taxes, along with other taxes, and Obama's tax cuts are overwhelmingly geared towards working Americans. Virtually everyone who receives a tax cut under Obama's plan pays some tax. See this post for details.

Obama would reduce taxes through tax credits. Isn't this welfare rather than a tax cut?
If you receive a tax credit, the size of the check you write to the government decreases. As most people understand it, this is a tax cut. McCain himself proposes a large refundable tax credit for health care. Bush pushed for and signed a child tax credit. The largest existing credit, the EITC, was introduced by Republican President Ford, and increased under Reagan, Bush I, and Bush II.

Is Obama a wealth-spreading socialist?
Here's a good response to that question:

I think you're questioning, questioning the fundamentals of a progressive tax system where people who make more money pay more in taxes than a flat across the board percentage. I think it's to some degree because we feel obviously that wealthy people can afford more... I believe that when you really look at the tax code the very wealthy because they can afford tax lawyers and all kinds of loopholes really don't pay as much as you think they do, when you just kook at the percentages. And I think middle income Americans, working Americans, who when you count in payroll taxes, sales taxes, mortgage -- all of the, all of the taxes that working Americans pay-- I think you would also think that they also deserve very significant relief...

When you reach a certain level of comfort, there's nothing wrong with paying somewhat more...The first people who deserve a tax cut are working Americans...and they're the ones I would support tax cuts for first.

That's John McCain in 2000.


Anonymous said...

Of course, payroll taxes are separate from income taxes because they are (supposed to be) ultimately returned to the worker that contributes in the form of a social security check at retirement. Indeed, lower income workers generally receive more money than they put in the system, while higher income workers do not break even.
Checks from the government for people that do not pay income taxes are, indeed, welfare. Perhaps the author's real point is that the Obama tax plan is merely MORE welfare.

The Democratic Party attempts to avoid this label because they know that mainstream Americans still believe in the virtues of hard work and self-reliance. Anyone that need question the ambition-destroying effects of socialist policies need only spend some time in a European country.

Don Pedro said...

Dear anonymous,
You are free to define terms anyway you like, but by your own definition, it's McCain who's proposing a massive "welfare" program, in the form of his refundable health care tax credit. The Tax Policy Center estimates that the McCain welfare program would cost $1.3 trillion over 10 years, and that's AFTER subtracting the savings from eliminating the health care tax exclusion.

lerxst said...

anon's position sounds nice in theory but lots of people's "payroll" taxes were redistributed by Bush's "income" tax cut because at the end of the day there's one big pot of money and the transfers happen between current workers to current retirees.

Anonymous said...

don pedro,
That's really the best you can come up with? Don't you have Ph.D. or something? That's no defense at all. I agree that refundable tax credits are a form of welfare; however, that is an entirely separate debate...providing health care subsidies is better (for many reasons, including efficiency benefits by preserving market forces and avoiding the creation of another government bureacracy, and liberty benefits by preserving individual freedom) than the leading alternative -- a Government takeover of the health care system). That being said, many more people are willing to sacrifice their hard-earned money to a redistributive program that helps ensures lower-income Americans can purchase health care RATHER THAN other (frivolous) goods that are likely to be purchased with a plain old check from the Government.

Lerxt, I concur that private accounts would avoid the generation-transferring effects that you refer to. However, you didn't refute the premise, either (this could be an unfair criticism, insofar that is is irrefutable). Individuals pay into social security in essentially as part of a forced-savings plan. We know that young people -- and some old -- essentially believe they are immortal or are just too irresponsible to save (in which case we might have to bail them out in old age anyway). Therefore, we force them to contribute. This is a far cry from receiving government welfare checks.

Don Pedro said...

I'm not surprised to hear you say that you have defined your terms in such a way that Obama's refundable tax credits are "welfare" while McCain's refundable tax credits are good policy.

As to what policy Americans support, I guess we'll find out Tuesday!

Your understanding of how Social Security works is incorrect, but explaining this in detail will require a longer post. In brief, it's not a forced savings program. As Lerxst says, it's a transfer from current workers to retirees.

Anonymous said...

No, I think we'll find out once an Obama/Pelosi/Reid administration adopts U.K.-style policies and Americans find out their true cost. In England, for instance, the 40% marginal tax rate occurs at about $65,000 U.S. equivalent of income. National Insurance (health care) contributions take another 10% or so. Unfortunately, by the time buyer's remorse sets in, it may well be too late to reverse.

The campaign *knows* that people don't like basic redistributive policies and therefore is hiding them under the false rubric of "tax cuts".

Obama is a blank slate to many. He has almost no record. He has a sensible temperament and people assume that will translate into sensible policies. How I wish that were true.

Don Pedro said...

What we've offered here is a description of Obama's actual proposals. The scenario whereby Obama raises middle class taxes to UK levels exists only in your own mind.

I think the best reply to the charge that Obama is "redistributionist" came from Robert Frank in this post:

Don Pedro said...

Also, see this post from Yglesias which addresses the question of whether people favor redistribution: