Obama Taxes - Wolf in Sheep's Clothing

Maybe more like a Socialist in Capitalist's clothing--a wardrobe of expensive business suits that us poor working class could never afford, unless we get the appropriate gov't handout....oops i mean tax cut!

From the WSJ:

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.

AP

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:

- A $500 tax credit ($1,000 a couple) to "make
work pay" that phases out at income of $75,000 for individuals and
$150,000 per couple.

- A $4,000 tax credit for college tuition.

- A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).

- A "savings" tax credit of 50% up to $1,000.

- An expansion of the earned-income tax credit that would allow
single workers to receive as much as $555 a year, up from $175 now, and
give these workers up to $1,110 if they are paying child support.

- A child care credit of 50% up to $6,000 of expenses a year.

- A "clean car" tax credit of up to $7,000 on the purchase of certain vehicles.

Here's the political catch. All but the 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," or in
George McGovern's 1972 campaign a "Demogrant." Mr. Obama's genius is to
call it a tax cut.

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 total annual expenditures on refundable "tax credits" would rise
over the next 10 years by $647 billion to $1.054 trillion, according to
the Tax Policy Center. This means that the tax-credit welfare state
would soon cost four times actual cash welfare. By redefining such
income payments as "tax credits," the Obama campaign also redefines
them away as a tax share of GDP. Presto, the federal tax burden looks
much smaller than it really is.

The political left defends "refundability" on grounds that these
payments help to offset the payroll tax. And that was at least
plausible when the only major refundable credit was the earned-income
tax credit. Taken together, however, these tax credit payments would
exceed payroll levies for most low-income workers.

It is also true that John McCain proposes a refundable tax credit -- his $5,000 to help individuals buy health insurance. We've written before that we prefer a tax deduction for individual health care, rather than a credit.
But the big difference with Mr. Obama is that Mr. McCain's proposal
replaces the tax subsidy for employer-sponsored health insurance that
individuals don't now receive if they buy on their own. It merely
changes the nature of the tax subsidy; it doesn't create a new one.

There's another catch: Because Mr. Obama's tax credits are phased
out as incomes rise, they impose a huge "marginal" tax rate increase on
low-income workers. The marginal tax rate refers to the rate on the
next dollar of income earned. As the nearby chart illustrates, the
marginal rate for millions of low- and middle-income workers would
spike as they earn more income.

Some families with an income of $40,000 could lose up to 40 cents in
vanishing credits for every additional dollar earned from working
overtime or taking a new job. As public policy, this is contradictory.
The tax credits are sold in the name of "making work pay," but in
practice they can be a disincentive to working harder, especially if
you're a lower-income couple getting raises of $1,000 or $2,000 a year.
One mystery -- among many -- of the McCain campaign is why it has
allowed Mr. Obama's 95% illusion to go unanswered.

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