Obama plan: tax cuts or Demogrants?
posted at 9:00 am on October 13, 2008 by Ed Morrissey
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Given Barack Obama’s relentless populism this cycle, the Wall Street Journal analysis of his tax cuts should surprise no one. They find that Obama relies less on actual cuts in tax rates and more in specific “refundables”, grants that filers receive whether they have a tax liability or not. Instead of reducing taxes, Obama makes his redistributionism explicit:
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.
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[.]
Six of the seven listed in the Obama plan are these “refundables”, money people get from the federal government even if they pay no taxes at all. These are not “tax cuts” but instead welfare grants based on specific social policy. It’s blatant redistributionism, as the money comes from tax increases on the wealthy.
Real tax cutters use that policy as a way to restrain growth in federal government, although the Republicans certainly forgot the other part of that equation for six years — cut spending. Obama’s plan actually makes people more dependent on federal government, and expands it significantly. It adds to the entitlement mentality while doing nothing about rewarding risk. This plan will penalize risk and encourage the wealthy to find even more shelters for their income and capital, more likely outside the US, which will mean fewer jobs and fewer opportunities.
The last thing this economy needs is a flight of capital. We need that money invested in America to create jobs, not hidden away from an aggressively redistributionist federal government. We should be reducing taxes, but not giving more money to people who don’t pay any at all.
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I think he is going to be surprised how many people have capital losses instead of gains this time.
flyoverland on October 13, 2008 at 9:04 AM
to bad so many see the free money and not the loss of jobs that will come with the exodus of companies to escape the tax increases.
trailortrash on October 13, 2008 at 9:06 AM
Let’s just call it what it is: Robin Hood policy to buy votes.
tru2tx on October 13, 2008 at 9:08 AM
It’s a nice argument Ed, and the correct one, of course. But the problem with it is that such a scheme can work in the short and intermediate term. The political and economic policies that have destroyed so many American cities, (and as you suggest now threaten whole states and even the US) took decades to achieve their aims. Only now do those places no longer have any revenue to re-distribute. I’m afraid that in a perverse way, the horrors you describe are seen by many others as sublime. They don’t care that in the long run, it brings ruin. Looting and ruin is the aim. Barack’s words are winners.
JiangxiDad on October 13, 2008 at 9:08 AM
On the one hand he taxes businesses/job providers, who will in turn increase prices of their services and products to cover the increase in taxes. So now OBambi will give money back to the consumers to be able to pay the higher prices he caused.
What a great mind for economics – NOT!
AubieJon on October 13, 2008 at 9:09 AM
I’m getting tired of people talking like Obama has won. It’s really pretty destructive to make believe this sort of thing since it keeps people from voting.
Obama and his supporters know exactly what they are looking at in terms of mass chaos financially. The headlines should be offering the facts about how we got where we are in simple terms for simple minds.
Obama has no plan and won’t stick to anything if he was ever elected. Hilary blamed insurance companies for her hot air balloon of health coverage never getting launched. This crook would blame Republicans, banks and Bush, while his religious advisor (Wright) would simply blame whitey from his office in the White House.
Hening on October 13, 2008 at 9:10 AM
I’m going to go out on a limb and guess that the ability to understand cause and effect is not a strong suit of any Obama supporter. With the exception of the cynical string-pullers, most of whom I would guess know exactly what they are doing.
venividivici on October 13, 2008 at 9:10 AM
Word!
OldEnglish on October 13, 2008 at 9:11 AM
Since when have Democrats become all about tax cuts? For that matter, since when have they been all about prayer and God and religion?
ballz2wallz on October 13, 2008 at 9:11 AM
And this surprises anyone? ok nevermind…. forgot we don’t teach basic econ anymore……
Randy1968 on October 13, 2008 at 9:13 AM
You’re right. But I’ll go further out on a limb. What else could come from universal suffrage at age 18 besides the manipulation of the system by some string-pullers?
JiangxiDad on October 13, 2008 at 9:14 AM
This is no surprise. As most people earning under 50k a year pay 0 in taxes, giving them a tax break would have to mean an expansion of the EIC of some kind.
Nethicus on October 13, 2008 at 9:16 AM
When (not if, when) Obama repeats his mantra “failed economics of the last eight years” in the debate, McCain needs to remind voters of how
–Bush’s tax cuts saved us from the Clinton recession,
–Bush’s tax cuts revived the post-9/11 economy, &
–McCain’s spending won’t be anything like Bush’s spend-like-a-Democrat policy.
jgapinoy on October 13, 2008 at 9:17 AM
That illusion has been filling TV. When will McCain answer it?
Right_of_Attila on October 13, 2008 at 9:19 AM
Money is already flowing out of the country in anticipation of an Obama win.
That is the part of the current economic crisis that the MSM is not reporting.
______________
RJGatorEsq. on October 13, 2008 at 9:21 AM
Sorry Ed, that’s how it’s going to be come January 20th in the USSA (United Socialist States of America).
m064404 on October 13, 2008 at 9:21 AM
If we had a patriotic educational class, universal suffrage wouldn’t be a negative, but, as it is, these young people’s minds are filled with such inanities that they are definitely susceptible to the string-pullers.
venividivici on October 13, 2008 at 9:22 AM
Obama’s expanding the class of welfare queens.
It’s a good article, containing a nice summary of the seven credits. Not all are applicable to every taxpayer because of circumstances: new car purchase, tuition, mortgage interest. Also, child care and earned income already exist but are expanded. The two generally applicable credits are “make work pay” and “savings.” I suspect that there’s a fair amount of tax compliance complexity that accompanies them too.
The slogan sounds good, but it seems a con. And I guess it’s working. I just wish McCain could offer an appeal similar to saying that cotton candy, like Obama’s tax plan, are appealing, but they don’t sustain you.
Recently, my dad mentioned that someone once wrote that democracy is in either it’s later (or last) stages when the populous realizes that it can vote itself largesse. If McCain could work that angle and work the angle that this just makes people more dependent on people like Barney Frank and Chris Dood, maybe it could be a cold dose of straight talk.
BuckeyeSam on October 13, 2008 at 9:22 AM
Outrage!!! Obama loses Nobel Economics prize to Kos blogger Krugman.
Future Nobel prize winners: Michael Moore, Nancy Pelosi, Harry Reid, Obama (naturally), Kerry, Dukakis, Ed Schultz, Bugs Bunny, Daffy Duck.
indythinker on October 13, 2008 at 9:22 AM
He who robs Peter to pay Paul gets Paul’s vote every time.
petefrt on October 13, 2008 at 9:23 AM
Vote buying, large size.
tarpon on October 13, 2008 at 9:24 AM
Unfortunately, people like their bread and circuses.
Illinidiva on October 13, 2008 at 9:24 AM
Robin Hood stole from the government.
MarkTheGreat on October 13, 2008 at 9:24 AM
McCain needs to call him on this and call it socialism like O’Reilly did. That should drive it home.
lodge on October 13, 2008 at 9:26 AM
Are you telling me that Oprah is willing to have half of her worth taxed, along with Hollywood? Something doesn’t add up.
moonsbreath on October 13, 2008 at 9:27 AM
It appears that Obama’s communist/socialist contributors are
successfully buying this country. I’m anxious to learn how they will like their Marxist regime when taxes soar, jobs disappear, commodities become scarce, health care is of very low quality and scarce, and this country devolves into just another socialist failure. Remember, the productive citizens must work very hard and diligently to provide for all of the parasites that will be given the fruits of their labor. It’s a sad time for the Republic.
rplat on October 13, 2008 at 9:30 AM
I posted this a few times lately. Hope you’re not sick of seeing it, but it does address what you said.
JiangxiDad on October 13, 2008 at 9:31 AM
FLIGHT OF CAPITAL = job loss = less paying taxes = more handouts = higher taxes on the top = Flight of capital
*
REPEAT
marklmail on October 13, 2008 at 9:32 AM
We make a serious mistake when we let them redefine words. Words express thoughts, and they shape thoughts too. When we allow them to redefine the words we use, we let them frame the debate. He who defines the terms wins the debate.
Everyone wants a ‘tax cut’, right? So let’s redefine ‘tax cut’ to include welfare payments to our constituencies. Simple as that.
(Obviously PC is, rather than mere annoyance, a pernicious threat.)
petefrt on October 13, 2008 at 9:36 AM
Dems I know seem to be wanting to vote for BO because of White Guilt. Why doesn’t McCain present a plan for a “White Guilt Fund” that people like this can donate to–give away 25 or 50% or more of their net income if it makes them feel better.
labwriter on October 13, 2008 at 9:36 AM
So…basically, people who don’t pay taxes now will pay even less under Obama’s plan? Sweet. I can’t wait to make my contribution to that noble effort.
/
Bob's Kid on October 13, 2008 at 9:36 AM
What happens wherre there are more of them than there are of us?
Do we become the new slaves?
Truly, only taxpayers or property taxpayers should vote. One needs a vested interest for something other than taking.
drjohn on October 13, 2008 at 9:37 AM
I was trying to make sense of Obama’s tax plan yesterday. This in particular demonstrated how utterly clueless (and dangerous!) he and his leftist friends and advisors are when it comes to economics:
From a debate question posed by Charlie Gibson, we already know that Barry doesn’t care that reducing capital gains taxes increases revenue to the treasury. It’s in the interest of “fairness”, he says.
Now he’s bragging about reducing revenues, and admits that the goodies he plans to give way as part of his welfare program add up to more than the revenues his tax increases will bring in! And that’s using static analysis, which doesn’t take into account the exponential harm his tax increases would cause, thereby drastically reducing revenues.
He offers no meaningful spending cuts to offset the difference. Call me crazy, but this sounds like a plan to bankrupt the Federal treasury, and is awfully reminiscent of the Cloward-Pliven strategy.
Buy Danish on October 13, 2008 at 9:37 AM
B.O. will never impose one single solitary tax cut!
It is part of the genetic makeup of your typical garden variety liberal left wing Democrat to raise taxes on everything under the sun.
And B.O. is as typical garden variety as they come!
pilamaye on October 13, 2008 at 9:37 AM
my dog has that same expression when asked if it
wants to go outside.
Texyank on October 13, 2008 at 9:44 AM
Fixed
NoFanofLibs on October 13, 2008 at 9:45 AM
Asked and answered. Atlas Shrugged is a good starting point.
JiangxiDad on October 13, 2008 at 9:46 AM
Obama is not a relentless populist, nor even an unrelentless one. Neither is McCain.
MB4 on October 13, 2008 at 9:46 AM
Apparently Obama told an audience this weekend that his goal was to spread the wealth.
If McCain can’t use this as an opening to attack Obama’s socialism, then there is no hope left.
MarkTheGreat on October 13, 2008 at 9:52 AM
What he is is not what you see now.
Populist, arguable.
Socialist, definitely.
drjohn on October 13, 2008 at 9:52 AM
Let’s call it what it is, and not be afraid to do so, “It’s Welfare.”
mngirl on October 13, 2008 at 9:53 AM
Count on it. The foot soldiers at ACORN, the New Party, and Project Vote are going to want to be paid with more than a lousy $500 a year tax credit.
Buy Danish on October 13, 2008 at 9:54 AM
Apparently Obama told an audience this weekend that his goal was to spread the wealth.
And the lazy, handout-loving jackalopes in the audience poured out their applause. You can almost smell their desire for someone else’s money.
When you pay the the street-sweeper the same wage as the brain surgeon, you are going to quickly run out of brain surgeons. The morons who constitute the new DFL base are going to doom us all.
Bishop on October 13, 2008 at 9:55 AM
Yet another area where we let the Dems frame the argument…to their advantage. Rather than talking about tax cuts and income classes – which purposely clouds the issue and nurtures class hatred – the focus should be on the differences in the candidates with regard to which one will put the most capital in the hands of job producers.
whitetop on October 13, 2008 at 9:56 AM
What are the odds that Obama reneges on his promises if he becomes President?
He can always say that the economy is far worse than anyone expected and can’t deliver.
Am I being cynical? The same thing happens in Australia.
Crux Australis on October 13, 2008 at 9:56 AM
So which state do we start gathering in a few months from now?
Bishop on October 13, 2008 at 9:56 AM
The problem with the targeted cuts or especially refundable credits is (as I think Kevin Hassett pointed out with the Gore tax plan back in 2000) is that the phaseouts cause nasty marginal tax spikes at the eligibility limits. This can distort incentives depending on how widely used the refundable credits are.
DrSteve on October 13, 2008 at 9:59 AM
And so whenever any entrepreneur succeeds and makes more than $250K, he’s going to wind up having his pocket picked so that Dear Leader Obamassiah can buy votes. Of course any disagreement or complaint is racist hate speech leading to such a person being given the “opportunity” to “reflect” upon such hatred. But don’t worry, the government will step in and run his business.
rbj on October 13, 2008 at 10:03 AM
This is devastating stuff.
Too bad conservatives are more worried about finding a birth certificate that doesn’t exist.
rockmom on October 13, 2008 at 10:04 AM
Alaska. Duh!
rockmom on October 13, 2008 at 10:04 AM
McCain certainly should demand that Obama explain how those who pay no taxes now are going to get a tax break.
Let McCain call it what it is- another welfare entitlement.
Once those monsters are created, they do nothing but grow and eat.
drjohn on October 13, 2008 at 10:08 AM
Obama’s unsound theories of wealth redistribution will now get a tailwind from Europe with Krugman’s Nobel prize.
whitetop on October 13, 2008 at 10:11 AM
The Wall Street Journal railed for 8 years about Fannie Mae and Freddie Mac. And nobody believed it. I predict similar yawns about this analysis. Nobody will believe it until we wake up in 5 years and find that half of our population is on the dole.
rockmom on October 13, 2008 at 10:11 AM
For a deeper sense of what is coming, read ‘Atlas Shrugged’, pages 1-1200.
Bishop on October 13, 2008 at 10:15 AM
This is something I wish McCain would hit on already. I think if he came out and said “Mr. Obama wants to cut taxes for 95% of people, 95% of people don’t pay taxes, so some would not pay taxes yet still get money back” He would have alot of middle income people come to his side. Sure everyone wants taxs cuts for themselves, but wouldn’t a middle income person see a bigger cut instead of part of that monet going to someone who paid no taxes.
Rbastid on October 13, 2008 at 10:16 AM
Gotta axe yoself. If he get mo money dan I does, why dunt I get mo handout fum dis bailout?
MSGTAS on October 13, 2008 at 10:17 AM
He’s also increasing the tax on the middle and poor class because he’s letting the Bush tax cuts expire.
That by defaultis a tax increase for everyone across the board.
Enoxo on October 13, 2008 at 10:17 AM
Um, I hate to keep plugging Rush, but he has been talking about this for years. To paraphrase … when we get to the point where we have more people on the public dole than off of it, it’s all over.
BigD on October 13, 2008 at 10:17 AM
http://taxprof.typepad.com/taxprof_blog/2008/10/hundres-of-econ.html
Bishop on October 13, 2008 at 10:17 AM
I see Lou Dobbs as a populist. Obama and McCain not at all. Socialists? Both Obama and McCain.
MB4 on October 13, 2008 at 10:19 AM
If you read his Proposals…
Its Kids, College, and houses…
Now, most boomers have already PAID for their houses….
Kids are gone…
Not in College…
So this is going to do nothing for retirees.
Add in that his increase in the capital gains tax keeps “evolving”… and we really don’t know what to expect for the older generation.
Romeo13 on October 13, 2008 at 10:20 AM
What Axelrod has come up with here is nothing less than a stunningly effective re-branding of a repeal of welfare reform.
The Left broke with the Clintons when Bill Clinton signed the Republican welfare reform law in 1996. They have been scheming ever since to repeal it. Make no mistake about this. But they know that middle America hates “welfare.” So they re-brand it as “refundable tax credits” paid for by “tax increases on the wealthy.”
They are very deliberately trying to turn America into a real welfare state, with a majority of voters who will continue to vote themselves more public benefits paid for by a smaller and smaller minority of productive citizens. This is their grand vision of “social justice.”
rockmom on October 13, 2008 at 10:30 AM
Or Texas. Texas is the only state that has a legal right to secede. Of course, then we’d have to worry about “illegals” from the other 49. (Or is it 56? :)
obladioblada on October 13, 2008 at 10:40 AM
This is bothering me so much!!!
It’s so very simple to understand and yet I scream, debate after debate at the TV. Why can’t Senator McCain just give us the “straight talk” express.
I’m pretty certain that this whole Socialist program will not go over well with the American people.
He’s got 2 days to come up with his talking points about this and he better be good!
HarryStar on October 13, 2008 at 10:40 AM
McCain was running even in the polls when he was attacking Obama as a tax-and-spend liberal. Now they are letting Obama get away with not only this “tax cut for 95% of the people” nonsense, but tagging McCain as planning “the biggest middle-class tax increase in history” with his health care plan.
The Left has very carefully planned this campaign, to co-opt conservative rhetoric and use it to spin their own socialist economic plans as acceptable and even conservative. The know the dog-whistles to use.
The McCain campaign has a statement that 100 economists, including five Nobel Prize winners, have denounced Obama’s tax plan as job-killing. I’ll bet 90% of McCain’s own supporters don’t even know about it. They put it up on the website. No press conference, no speech, no TV ads, no surrogates on the Sunday talk shows hammering it, nothing.
If the McCain campaign cannot even MAKE this argument, much less win it, then McCain does not deserve to be President. This is a shitload more important than Bill Ayers or Jeremiah Wright. Obama will have close to a veto-proof Congress and this welfare plan will be the first thing it passes in January.
rockmom on October 13, 2008 at 10:48 AM
Obama’s “chicken in every pot” mentality/promises are what led to the first depression followed directly by FDR’s suspension of the NEW DEAL and taxes were raised across the board which extended the depression. An Obama administration on its face appears to be an historical repeat of the tragedy.
Rovin on October 13, 2008 at 10:49 AM
Obama will respond that they pay payroll taxes. Don’t know if McCain will be swift enough to retort that they get the earned income tax credit (in advance) so they don’t pay that either.
McCain should also point what I noted earlier, which is that Obama’s own website brags that his plan brings in less revenue, and admits that his tax increases on the “rich” don’t pay for his
“tax cuts”wealth redistribution scheme, and his proposed spending cuts won’t do diddly squat to make up the difference.In short, it’s a freaking farce. McCain should laugh in his face, the same way his campaign laughed at his celebrity status.
Buy Danish on October 13, 2008 at 10:56 AM
Perhaps, but one of them would do or say anything simply to get elected…. if it were somehow true that the first person to screw a cat would get elected, the next group to forgive Obama any transgression would be PETA and the next sound heard from the Obama campaign would be “MEOW!”
CC
CapedConservative on October 13, 2008 at 11:00 AM
It may become more profitable to take a lower paying (and easier) job.
Hmmm. Food for thought.
13Girl on October 13, 2008 at 11:03 AM
Or Texas. Texas is the only state that has a legal right to secede. Of course, then we’d have to worry about “illegals” from the other 49. (Or is it 56? :)
obladioblada on October 13, 2008 at 10:40 AM
That is an urban legend that has been thoroughly debunked. Secession is not in the Texas Constitution! However, Texas can divide into 5 states, but good luck on that also.
Anyway, come on down, but leave your liberal minded teenagers in their home state!
There are no moose to hunt, but deer are a major pest in the Hill Country because the only top of the food chain predator is the hunter with a deer license, and we are not giving up our guns, bibles, or tax dollars to the USSA.
calguyintexas on October 13, 2008 at 11:11 AM
Very good questions. Another: Since when did Republicans become all about government bailouts and increased regulations?
That’s where McCain is right now…
thePajamaPundit on October 13, 2008 at 11:19 AM
It doesn’t matter WHAT John McCain says in a debate- Obama will respond that he’s a lying racist and the MSM will back him up. The average American can’t underdstand a two minute debate explanation on taxes! They need to see and hear it on the MSM, over and over. If the truth of Obama’s plans, all of them, were fully vetted, the public would be horrified at what they were getting! But alas- this is but a dream that our liberal media might actually play fair and tell the American public the truth.
anniekc on October 13, 2008 at 11:26 AM
What is that old saying about democracy lasting until people finding out that they can vote themselves someone elses money?
This is only the Roosevelt corallary of that theory.
Promise to give people someone elses money to buy votes.
Amazed on October 13, 2008 at 11:27 AM
With the Nobel “peace” prize having been awarded to people like Arafat and Al Gore, does anyone take the Nobel prizes seriously anymore? They have become nothing more than a public confirmation that the recipient adheres to the loony Leftist line of thinking.
AZCoyote on October 13, 2008 at 11:39 AM
To most people, “tax cut” really means “tax rate cut”; like the Reagan tax cuts which lowered marginal rates. A tax credit doesn’t touch those rates. In fact, if the credit is limited based on income, as the EIC is, it can actually raise the effective marginal rate. Once the taxpayer earns the maximum EIC, earning additional income reduces it until it reaches zero.
Mix in other programs where eligibility is based on income, and you will find points on the income spectrum where earning an additional dollar results in the person having less money to spend after factoring in the taxes and programs. I once had a single mother who worked for me that told me she didn’t want more than a certain number of hours a week, because it would cause her to be pushed into a higher bracket for her Section 8 housing, Medicaid, etc., and would actually cost her money.
It is as if the marginal tax rate in those income ranges is over 100%. And that seems awfully regressive to me.
The Monster on October 13, 2008 at 12:07 PM
We are well past the “short” and close to the end of the “intermediate” terms.
DFCtomm on October 13, 2008 at 12:36 PM
Rather than go to all of the aggravation involved with Obama’s proposal, why not just get to the bottom line quickly by sending China a check?
hillbillyjim on October 13, 2008 at 12:40 PM
Of course, I forgot about the Constitutional right to a big-screen TV for all “under-served” individuals.
hillbillyjim on October 13, 2008 at 12:43 PM
God bless the USSR.
By Obama’s reckoning, they had almost no taxes whatsoever.
He can go on to define freedom of speech as allowing us to write in to the government newspapers.
29Victor on October 13, 2008 at 1:42 PM
Oh no, I wasn’t accusing you of plagiarism at all….I’ve certainly said such a thing in the past, but so have you and a few others. I was just glad to see you raise the issue :)
I’d go even further, in fact….make all ‘taxes’ voluntary. If you choose to participate in a standardized gubmint revenue-generation scheme (flat 10% or whatever), then yuo get to vote – if you buy in, you get a say in how your money is spent.
LimeyGeek on October 22, 2008 at 9:05 AM
Oops…cross-post….bugger
LimeyGeek on October 22, 2008 at 9:12 AM
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