OBAMA'S TAX HIKE
August 25, 2008
Barack Obama promises cuts in middle-class taxes. But what's touted as tax-cutting hides tax increases for the middle class, says Investor's Business Daily (IBD). According to the American Enterprise Institute's Alex Brill and Alan Viard, "Senator Obama's proposed 'tax cuts for the middle class' are actually marginal rate hikes in disguise."
The reason: Obama's plan rescinds tax breaks as some taxpayers' incomes rise, reducing their incentives to earn more.
Using data from the Brookings Institution's and Urban Institute's joint Tax Policy Center, Brill and Viard considered the Obama plan's effect on a two-earner couple with one child in college and another age 12 or younger:
- Their marginal tax rates are between 34 percent and 39 percent in the $31,000 to $45,000 income range -- a 13 percentage point or more increase from current rates.
- The increase happens because Obama phases out the child and dependent-care credit for one-child families in the $30,000-to-$58,000 income range.
According to Brill and Viard:
- The effective tax rate increases by 3 percentage points, while making certain credits refundable triggers a tax penalty of up to 15 percent.
- The same family earning $110,000 to $120,000 would suffer "a staggering 45 percent effective marginal rate . . . 11 percentage points higher than under current law," the AEI scholars say, because of changes planned for Bill Clinton's Hope Scholarship Tax Credit.
Undoing the Bush tax cuts, raising income tax rates, adding complexity to the tax code and believing that you can raise taxes on the richest Americans by an average of $800,000 a year, as Obama plans, with minimal negative economic effect -- it all adds up to reversing an important part of the Reagan Revolution.
Source: Editorial, "Obama's Tax Hike," Investor's Business Daily, August 22, 2008.
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