The American Spectator

The Public Policy

Obama's New Tax Welfare

By Peter Ferrara on 8.27.08 @ 12:07AM

In 1984, Walter Mondale ran for President promising to raise taxes if elected. He consequently made it to the dustbin of history even before the Soviets, averting a 50 state shutout by just 1,200 votes in his home state of Minnesota.

The recently released details of Barack Obama's tax plan, published on his campaign website, along with an article by his top economic advisers in the Wall Street Journal, confirm that Obama makes Mondale look like a moderate. For Obama pledges not just to raise taxes. He proposes to raise every major federal tax. The recently released details confirm that:

* Obama would raise individual income taxes, increasing the top two income tax rates, with the top rate climbing by 13%, to almost 40%. This tax increase particularly hits small business, which creates the most new jobs in America.

* Obama would raise the top capital gains tax rate by 33%, to 20%.

* He would also raise the top dividends tax rate by 33%, to 20% as well.

* He would raise Social Security payroll taxes by 16% to 32% for families earning over $250,000 a year. He would consequently arbitrarily punish these families with an effective real return from Social Security of less than 0%, while making only a minor dent in the long term Social Security deficit.

* Obama would reinstate the death tax (estate tax) now being phased out under current law, with a top tax rate of 45%.

* The Obama health plan includes a new payroll tax on employers to pay for health insurance.

* Obama would impose several specified tax increases on corporations, including a new so-called windfall profits tax on oil companies.

* Obama's protectionist trade policies would mean higher taxes and tariffs on trade.

* Obama tries to argue, crassly, that these tax increases would fall only on "the rich." The tax increasers always start by saying that. But they always end up reaching down towards the middle class because that is where the big money is. The federal income tax was adopted almost 100 years ago with the promise it would only tax "the rich."

Moreover, the answer to Rick Warren's question as to who the rich are is small business employers who create most of the jobs, and investors who finance the jobs. Raising taxes on them ends up hurting the middle class and working people the most in terms of lost jobs, lower wages, and a weaker economy, discussed further below.

OBAMA TRIES TO HIDE these comprehensive tax increases with a slew of refundable tax credits he calls middle class tax cuts. The term "refundable" means that if the worker does not have enough tax liability to take advantage of the credit, the government sends the worker a check to cover the full amount of the credit anyway. So if the tax credit is for $1,000, but the taxpayer would otherwise only pay $200 in taxes, the credit covers the $200 tax bill and the government sends the taxpayer a check for the remaining $800. If the taxpayer pays nothing in federal income taxes, the government would send him a check for the whole $1,000.

The big trick behind the Obama tax plan is that his refundable tax credits would primarily go precisely to those who pay little or nothing in federal income taxes. The latest CBO data shows the bottom 40% of income earners already pay no federal 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, such tax credits are not tax cuts. They are government spending programs hidden in the tax code. I call it The New Tax Welfare. Here is a complete litany of Obama's proposed new spending programs disguised as tax cuts:

Letter to the Editor

topics:
Taxes, Trade, Health Care, Barack Obama, Economics, Business, Entitlements, Earmarks, Social Security, Law, European Union, Energy, Oil