NCPA - National Center for Policy Analysis


October 14, 2008

Barack Obama says he will give 95 percent of all American workers a tax cut but does not mention that his plan would send checks to tens of millions of tax filers who pay no personal income taxes -- payments that critics say look "suspiciously like welfare."

  • Obama's campaign promise, which he has repeated in his speeches and in the presidential debates, stems from his "Making Work Pay" tax cut that will give a $500 refundable tax credit to every worker or $1,000 to each working couple.
  • But because this provision in his economic-recovery plan is "refundable," a large number of middle- to lower-income workers who have no income-tax liability after taking tax credits and deductions the that Internal Revenue Service allows, will be given the equivalent of the tax cut in the form of direct payments from the U.S. Treasury - funded by higher-income taxpayers.
  • Because the IRS says that nearly 46 million tax filers - one-third of all filers - had no tax liability in 2006, there is the question of how millions of Americans can receive an income "tax cut" when they pay no taxes.

"It's got to raise alarm bells when you claim you are going to cut taxes for 95 percent of working families when more than 40 percent of them pay no income taxes," said Phil Kerpen, policy director at Americans for Prosperity, a grass-roots free-market advocacy group.

The freshman senator's campaign Web site defines the Democrat's tax-relief proposal only in terms of offering workers "middle class tax cuts" and "for 10 million low-income Americans, will completely eliminate their federal income taxes."

But in a recent research paper on federal taxpayers, Scott Hodge, president of the nonpartisan Tax Foundation:

  • There will be 47 million tax returns with zero-income tax liability in 2009 under current law.
  • That's one-third of all tax returns and those 47 million tax returns represent 96 million individuals.

Source: Donald Lambro, "Obama tax cut 'refunds' those who don't pay," Washington Times, October 13, 2008.

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