WSJ: Obama’s 95% Illusion
By Jason Kenney | Tuesday, October 14th, 2008 | PolicyBarack Obama’s promise to cut taxes for 95% of American’s not only ignores the fact that the lowest 40% don’t pay taxes (but would get a redistribution of wealth from everyone else) but also seems to be a little less than accurate:
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.
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Jason Kenney has blogged at J’s Notes since 2001, is the director of RedStormPAC providing online fundraising for Republican candidates in Virginia, and co-founder of K6 Consulting. He is a graduate from Virginia Commonwealth University and resides in Richmond, Virginia.
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18 Responses to "WSJ: Obama’s 95% Illusion"
Wow! I read the whole article. How can Obama say he is not a big gov’t. guy? His tax policy encourages you to make less and rely more on the gov’t. He also encourages both husband and wife to work and send your children to gov’t. run or at least gov’t. funded daycare centers. I see nothing in there that encourages one parent to stay home and raise your own children. Can’t have that nasty self reliance.
Does Obama really believe we are better off having 18- or 19-year-old women who make $7/hour raise our children over loving parents? That might make more of us reliant on the gov’t., but socially, morally and fiscally it will bankrupt this nation. Call me cruel, but I would like to see those young women unemployed or preferably in other, higher paying jobs.
Republicans get a bad rap for widening the gap between the haves and haves not by making the haves richer. Why don’t the liberals get a bad rap for widening the gap by increasing the number of have nots? I would much rather have the first scenario.
I see a concerted effort by Democrats to erase the middle class, creating the perfect environment for Marxism to rear its ugly head.
An aside our liberal, social welfare policy already encourages women to shack up with a man who is not the father of their children. Welfare programs give more money to a mother, her children and her boyfriend than it does to a mother, father and their children. More than any other demographic group blacks find themselves to be in the first group. Why isn’t the all-caring Barry seeking to liberate these gov’t. slaves? Maybe it is just me, but I believe fathers generally are better suited to raise children than boyfriends are.
Marginal tax rates do not equal tax dollars, and can easily be twice the effective tax rate. As the article shows, Obama has proposed a number of refundable tax credits, which can cause marginal tax rates to fluctuate dramatically as they get phased out mid-bracket with increasing income. Even so, a tax policy center study shows Obama’s plan would increase the marginal tax rate in < 25% of all taxpayers making < $500K (varying between 0.5 and 24.7 depending on income range), and in 15% overall. The above example is cherry picking to get one of the worst examples, by tieing in multiple tax-credit phase-outs.
Duck,
My household is a single income household. When my wife and I had children, we were fortunate that i was compensated well enough that she could stop working and my income alone could support us, albeit with some lifestyle changes. Not every family has it so lucky. Of the dual-working parent families i know, they chose to do it for one of two reasons. Either they have no desire to change their lifestyle (usually wealthy) or they don’t see how to make ends meet on a single income. It is that second group that many of Obama’s tax credits are aimed at. If that childcare credit means mom only has to work 20 hours a week at Walmart instead of 39 to pay the bills, then that’s a good thing in my book.
And unless you are talking about a major refundable tax credit, no tax policy could ever incentivize stay-at-home parenting, as it would almost always be less than a secondary income would provide.
If you actually look at the tax credits and incentives Obama is proposing, i think you’ll see many of them incentivize what we think of as responsible behavior (employment, saving for retirement, and going to college).
Ya know, it used to be that people didn’t need government incentives to get a job, save for retirement or go to college.
Refundable tax credits for people who don’t pay taxes – ya know, that used to be called “welfare”
Yes, Jeremy. Making ends meet can be tough, with everyone having their personal cell phones, $400 game systems with $50 video games to occupy the kids when they can’t find anything to watch on the 150 channels on their 48″ tv screens, when the 100s of DVDs aren’t interesting to watch anymore.
Somehow, I managed to make it through childhood without my own phone in my pocket, my personal movie collection, high-tech video games, MP3 players and IPODs.
But my parents did save for college and paid for my health care.
Funny how things worked out.
And lastly, during Clinton’s time in office the poverty rate of individuals fell from 15.1% to 11.3%, and 13.3% to 9.6% for families. Since Bush took office in 2001, it has gone back up to 12.5% for individuals and 10.8% for families as of 2007. Tell me again how democrats are increasing the have-nots?
Brian, you’re 100% right, we live in a consumerist society, when people think cable TV and cell phone is a right. I contest though the idea that government is the cause of that. Our non-retirement national savings rate is non-existent, and our debt has skyrocketed. We can get whatever we want with easy credit, and its all so cheap from Walmart. I don’t blame welfare for those societal ills.
And I don’t think government handing out checks for everything under the sun and paying for it with ever-increasing taxes is the answer, either.
Enabling poor choices is not good policy.
Many salaried employees are offered 401Ks with partial matches from their employers. Obama’s plan basically extended this option to the lowest income earners, who are probably the worst savers.
We already have college tax credits for low income, Obama’s opens access to higher education to even more lower income families.
And by offsetting payroll taxes for those on the bottom of the income scale, he’s making increased employment more attractive than welfare . I thought Republican’s were all for rewarding hard work?
How is this enabling poor choices?
Because every one of your ideas requires more government spending and more taxes.
Want college more affordable? Ask how in this age of technology, tuition increases of 10% a year to gain information is justified. Our higher education model and cost structure is insane given the information age and the ease of transmitting data, audio and video. Throwing more government money at an inefficient delivery system like today’s colleges doesn’t make them more affordable. It’ll just enable even higher prices.
And I don’t think we need to have government subsidies for work to make work more attractive. Now, if you think the payroll tax is bad, then just you start working on repealing it.
But government writing checks to some people who pay a tax paid for by other people who actually do pay the tax is socialist.
See, Jeremy, one day you’ll learn this. Throwing money at expensive things never makes them cheaper. It’s basic economics for most people, but liberals try to convince people that if government spends loads more money at something, it magically drops costs.
It doesn’t. More money chasing the same goods increases price every time.
Good points on colleges, i can’t argue with that. Being in close proximity to CNU and seeing tuition increases to pay for luxurious dorms helps hammer a point home.
Govt funding, while contributing, is far from the only factor in tuition increases though. Even the Heritage Foundation bemoans the fact that lower income families aren’t getting the tuition benefits available to middle and upper income families. Obama’s plan would help address that.
I don’t think throwing money at something is the solution. But i do think that strategically using money early to try and avoid spending more later is good policy.
I guess one main difference is where i see societal ills and government solutions, you see governmental ills and societal solutions.
Honestly, Jeremy, thank you about colleges. Neither party wants to pursue real reform when it comes to higher ed, and it’s sad that I can buy international securities and move tons of money throughout the world without ever leaving my laptop, but I have to move miles from home and sit in a classroom and live in a dorm to learn Philosophy 101. It’s silly.
I’d never believe that government money is the only factor in tuition increases, but increasing available money won’t lower costs. Increasing the money available to people who want to go to college will eventually just feed on itself.
And I agree with your final point. I don’t believe government ever solves a problem. I think it’s government’s natural state to complicate a problem and continually get re-elected promising to fix it.
That’s why those who came to power fighting racism seem to dredge it up whenever people start treating each other as equals. That’s why those who create programs to help the needy just perpetuate their neediness.
Could you imagine what would happen to colleges if people refused to pay their outrageous tuitions? Could you imagine how inexpensive it would be to attend a virtual campus where a course could literally be taken by thousands of people at once?
Can you imagine the cost of that education? Could you imagine the continuous learning that could be possible with such a system.
No. We have an air traffic control system that still runs on vacuum tube technology, we take 20 years to build a road, and we have government thinking that, in America, people won’t get a job unless they get a tax credit to do so.
The outlook for America’s standing in the world ain’t too bright if we continue to run things this way, and everything Obama’s proposing is more government, more taxes, higher budgets and subsidizing inefficient models like higher ed.
Brian,
I’m glad you pointed out our Nation’s infrastructure while talking about our educational problems. And you’re right, our infrastructure is crumbling becuase no one interested in investing in it. It won’t bring short term profits, which is the only thing that matters in our current climate of immediate gradification.
And that is the fundamental problem with so many aspects of our current society.
If we are at all interested in remaining a competitive economy we are going to have to make some sacrifices. This means making some long term investments in our country. Not just roads and bridges, but energy production and distrobution. But most importantly in education.
I know the idea of spending tax dollars on education drives fiscal conservatives crazy. But here’s why I don’t understand.
If you ran a large company, wouldn’t you want the most educated employees you could hire?
Apart from that very basic point, here’s why I think investing in ED is important for this country, not becuase it’s the right thing to do, or because everyone deserves a college degree. I think that if we educated as many Americas as possible, we would increase the productivity of our middle class ten fold. This would raise the numbers of the middle class and increase our tax base exponetially and offset what we’d pay for it in taxes.
Here’s why I don’t think it will ever happen. Those in power don’t want an educated populace. Educated people aren’t easily duped. They pay more attention to what our “leaders” are doing and are more demanding. They also turn out and vote more.
Brian, I just saw the time of your last post, don’t you ever sleep?
Yes. November 5th
Jeremy,
Brian addressed a lot of your comments. I just wanted to add a couple of things. My three brothers and I were raised by a one-income family making less than $50,000. The two of us who wanted to go to college went because we worked hard as a family. We didn’t need gov’t. assistance.
Today, my wife and I are raising 4 children making less than $50,000/year. My youngest brother and his wife are raising 4 children making even less than I am. Could I make more? Probably, but family not money is my priority. I know a number of people that I work with– who are not rich as they make the same money I do–and they cannot raise 1 or 2 children without both parents working. They choose money over family. That is the problem with our society. That is what Barack is encouraging.
It is not how much money you make, it is the choices you make. Pro-family choices or me choices. It is my opinion that most two-income families choose me or money over family. Two-income families is a lie. Families can make it today on one income. Most of us just are not willing to try. We don’t need gov’t. help to encourage us to be more selfish and cosumeristic, we need to rely on ourselves.
And Jeremy I greatly respect your and your wife’s decision to live on one income. We need more people like you.
Frenchy, I’d agree with you if I thought increasing the cost of education would increase the quality of education. I think the cost of education is over-inflated now.
In fact, smart qualitative changes in the delivery of education should lower costs, not increase them.
I advocate more choices of higher value at lower costs, which is what the private sector has been market-forced to provide in so many areas.
Except education.
Except health care.
And guess why.
Government.
Jeremy,
One minor correction about Wal-Mart. I know a number of people who work at Wal-Mart and most are lucky to work 39 hours. Generally Wal-Mart likes to keep hours down closer to 32 than 40, and Wal-Mart also likes the 20-hour workers, but I get your point. I just disagree with it.
I am in and out of “poor” families’ homes everyday. Granted, NY pays more out in welfare benefits than many other states, but still many of these families are dirty poor living off the gov’t. These people who are barely scraping by have pre-paid cell phones, the $100 cable package with televisions in the livingroom and every bedroom and three computer game systems. Generally the adults (and often the children) smoke and often drinking and drugs are issues. These families have no money, but they are resourceful enough to indulge these vices. Each of these vices degrade the family.
My take on Obama is he wants to give more money to these families–who are smart enough to work just enough to be able to file an income tax form–in the form of his tax incentives. Money is not their problem. Their values are. I’m not advocating the government promoting values, but it would be nice if Democrats admitted to the faults of their system to give even more money to people who are ill equipped to handle that money.
Obama’s givebacks are not helping the middle class as much as they will help drug dealers, bars and convenience stores.
Brian,
I totally agree with you. I don’t know what the answer is. But I do believe we need to try as many things as we can and I do like your idea for more Online Education.
The draw back with that is there have been some studies suggesting that students don’t retain as much knowledge outside a class room.
Once again, I don’t know what the answer is. I just know if we want to remain a world leader, we need an educated work force to make it happen.
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