NCPA - National Center for Policy Analysis


August 19, 2008

Barack Obama's tax plan is the opposite of supply-side economics.  He proposes to raise marginal rates for just about every federal tax.  He also proposes a raft of tax credits that taxpayers can receive if they engage in various government-specified activities, says Peter Ferrara, director of entitlement and budget policy for the Institute for Policy Innovation.

Moreover, the tax credits would mostly go to those who pay little or nothing in federal income taxes.  His trick is to make the tax credits "refundable," says Ferrara.  For example:

  • If the tax credit is for $1,000, but the taxpayer would otherwise only pay $200 in taxes, the government would write a check to the taxpayer for $800.
  • If the taxpayer pays nothing in federal income taxes, the government would pay him the whole $1,000.

Such credits are not tax cuts, explains Ferrara.  Indeed, they should be called The New Tax Welfare.  In effect, Obama is proposing to create or expand a slew of government spending programs that are disguised as tax credits.  The spending on these programs is then subtracted from the total tax burden, in order to make the claim that his tax plan is a net tax cut overall.

On the tax side of the ledger, the details released by his campaign last week confirm what a President Obama has in mind for our most productive citizens:

  • The top individual income tax rate, for example, would be increased by 13 percent, to 39.6 percent.
  • The next-highest rate would be raised to 36 percent; the top rates on capital gains and dividends would rise by a third, to 20 percent.

The Social Security payroll tax would be raised between 16 percent to 32 percent for families making over $250,000 a year.  This means that the real returns these people get from their lifetime payments into the retirement program will be driven below 0 percent, according to Ferrara.

Source: Peter Ferrara, "Obama's Tax Plan Is Really a Welfare Plan," Wall Street Journal, August 19, 2008.

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