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The truth about Obama's "tax cuts for 95% of Americans"

post #1 of 21
Thread Starter 

I was completely shocked to read this article today.  This is certainly not how things have been portrayed  At the minimum, the incentives for people are completely out of line.  Shouldn't you want to increase your income?  The marginal tax rates under Obama's plans are ridiculous.  Furthermore, the idea of 44% of Americans paying no taxes at all is terrifying to me.

 

I'd just like to hear what others think about this type of tax policy.  The more research I do, the more frustrated I get with both candidates.

 

online.wsj.com/article/SB122385651698727257.html

post #2 of 21

Well I'm going to start off by saying that I don't care much for the Wall St. Journal.  It's Opinion section (where this article is published) is dominated by extremely right-wing articles.

 

That aside, I don't really understand what the author is complaining about.  He seems to quibble that a tax credit isn't the same as a tax cut, but in practical terms there's little difference.  I guess his complaint is that everyone receives the tax credit (even if they're not paying income tax), whereas a "tax cut" doesn't apply if you're not already paying out.

 

Then he cites right-wing think tanks like the American Enterprise Insitute and Heritage Foundation, which from my experience in global warming, are very good at manipulating information to misrepresent it.  That's not to say they're necessarily doing it here, but it automatically makes me skeptical.  Sorry, I just shudder anytime I see the words 'Heritage Foundation' now.

 

As for 44% of Americans not paying income tax, that's only about a 10% increase from what it is now.  I don't really see the big deal about that.

 

Then teej alludes to this last point - "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."

 

Okay you're losing 40 cents of tax credits, but you're also making 100 cents in increased wages.  I don't see how that disincentivizes hard work.  And "some families could lose..." is very vague.  Are we talking about a lot?  Most?  A small percentage?  Sounds like they're talking about the families that get the maximum amount of tax credits - not a large group.

 

I don't know, maybe I'm missing something, but I don't see any big issues here.  The main complaint of the article seems to be that he considers Obama's tax plan a form of welfare because people who don't pay taxes will be getting checks via tax credits.  But they're not exactly going to be welfare-sized checks - just something to help with child care, mortgage, etc.  If you don't have chidren, a mortgage, etc., you don't get the credits.  If you want to complain that this is welfare, okay, but personally I don't have a problem with it.


Edited by dana1981 - Mon, 13 Oct 2008 21:42:56 UTC
post #3 of 21
Thread Starter 

Okay...you're right that the Heritage Foundation is a conservative organization.  I've never heard anything partisan about the The Tax Foundation or the Tax Policy Center though, and they are the basis for most of these numbers (I could be totally wrong).  If you think any of the facts presented are false, that's something, but I think it does quite a good job of laying out exactly what he means by a 'tax cut.'

 

The scariest fact to me is the increasing number of Americans that pay no taxes.  Here's my problem with it, if you're about to go and vote and you happen to be one of the 44% that pays nothing, and you're allowing proposed government spending to impact your decision, why would you ever say no to a new program?

 

The thought process for a person in that position probably goes something like this: "Hmm...I don't pay a penny now...why wouldn't I want some more stuff for free?  Why wouldn't I vote for him/her?"  My issue is that no one should ever comfortable getting something for nothing.  It's easy for someone to say, "You know, I paid $20,000 in income taxes last year and don't feel like my money is being spent wisely.  Maybe I should support someone that is going to get our government's spending under control."

 

I think at the extreme, maybe 10% of Americans should pay no income taxes.  And I'm not saying they should be taxed significantly, maybe it's only 10% or less.  The point is every person that makes even a decent wage should see that line on their paycheck that causes them to think of the consequences involved with government spending running out of control.

post #4 of 21
Quote:
Originally Posted by teej:

 

The scariest fact to me is the increasing number of Americans that pay no taxes.  Here's my problem with it, if you're about to go and vote and you happen to be one of the 44% that pays nothing, and you're allowing proposed government spending to impact your decision, why would you ever say no to a new program?

 

The thought process for a person in that position probably goes something like this: "Hmm...I don't pay a penny now...why wouldn't I want some more stuff for free?  Why wouldn't I vote for him/her?" 


 

I don't see how this argument is different than voting for someone who's promising to cut your taxes (i.e. McCain).  In fact I have a much bigger problem with McCain's plan, which will cut taxes across the board at a cost of $600 billion with no plans on how to pay for it (except the nebulous "spending cuts").  At least Obama pays for his cuts with corresponding increases on the wealthy tax rate.

 

Regardless, if you're paying 0% or 30% of your salary to taxes, your vote isn't going to change how much you pay unless it's going to change the tax rate.  If you vote for constant spending increases, eventually the tax rate will probably have to increase - just because you pay 0% now is no guarantee it will remain at 0%.


Edited by dana1981 - Mon, 13 Oct 2008 22:27:47 UTC
post #5 of 21
Thread Starter 
Quote:
Originally Posted by dana1981:


I don't see how this argument is different than voting for someone who's promising to cut your taxes (i.e. McCain).

 

That's a fair point.

 

Why can't we just keep the tax rates exactly as they are (we pay more than enough as it is) and just promise to close the tax loopholes?  That would effectively be an enormous tax increase on the wealthy.  Then, let's promise to reduce government spending by 15% across the board in the next decade, 1.5% per year.

post #6 of 21
Quote:
Originally Posted by teej:

Why can't we just keep the tax rates exactly as they are (we pay more than enough as it is) and just promise to close the tax loopholes?  That would effectively be an enormous tax increase on the wealthy.  Then, let's promise to reduce government spending by 15% across the board in the next decade, 1.5% per year.


 

Because cutting taxes is how you get votes, teej   ;-)

 

Plus with the economy in the crapper they're trying to get more money in the hands of your average joe, which they hope will translate into more spending and thus economic recovery.  And it's tough to promise consistent spending cuts because you never know what's going to happen (case in point, Iraq War).  Obama in particular wants to spend money on green tech, which I'm all for.

post #7 of 21
Thread Starter 
Quote:
Originally Posted by dana1981:


Because cutting taxes is how you get votes, teej   ;-)

 

 

That sums it up, as sad as it is.  That's what it's turned into, a massive attempt to buy votes.  If you promise 44% of people that they'll get all kinds of programs and now, additional cash each and every year, how could you not get that 44% to vote for you?  It would seem quite easy to get the additional support you'd need to get elected.

post #8 of 21

Well they could not vote for you because the other guy is promising to cut taxes too.


Edited by dana1981 - Tue, 14 Oct 2008 01:01:44 GMT
post #9 of 21

This sounds like Obama's plan is calling an entitlement a "tax cut" - I am very weary of giving folks something for nothing on an on-going basis.  It sets a precident for the next election for the Dems to say the Reps are going to take your money away if you elect them - so totally buying votes!  Problem is - it is not their money at all if they did not pay taxes... it's the money of all the citizens that did pay taxes.  This creates an even more convoluted system that will take years to undo as to change the "tax cut" would be spun as various folks in the government being for "taking your money away". 

post #10 of 21
Thread Starter 
Quote:
Originally Posted by SoCalSolar:

This sounds like Obama's plan is calling an entitlement a "tax cut" - I am very weary of giving folks something for nothing on an on-going basis.  It sets a precident for the next election for the Dems to say the Reps are going to take your money away if you elect them - so totally buying votes!  Problem is - it is not their money at all if they did not pay taxes... it's the money of all the citizens that did pay taxes.  This creates an even more convoluted system that will take years to undo as to change the "tax cut" would be spun as various folks in the government being for "taking your money away". 

 

I have the exact same fears.  I really don't think most Americans realize this is what Obama has planned.  It's portrayed as a simple tax cut for most Americans with a significant hike for the wealthy, and it's not that simple.

 

It's been getting more attention over the last week so I'm sure it will come up in the final debate.  It will be interesting to see how he justifies it.  I think it's a slippery slope.

post #11 of 21

I still really don't have a problem with it.  I mean, in every election since the dawn of civilization Republicans have argued "Democrats want to raise your taxes".  McCain is even making that argument of Obama's plan right now!  So to be concerned that Democrats are going to make the same kind of argument (Republicans are going to take your money away) - I don't think that's really fair.

 

All it boils down to is how you want to distribute money.  You guys don't want to give tax credits to people who aren't paying taxes.  That's fine, I don't personally mind it, but it's a perfectly valid position.  But I don't think it's as big of a deal as you're making of it.


Edited by dana1981 - Tue, 14 Oct 2008 19:14:56 UTC
post #12 of 21
Thread Starter 
Quote:
Originally Posted by dana1981:

I still really don't have a problem with it.  I mean, in every election since the dawn of civilization Republicans have argued "Democrats want to raise your taxes".  McCain is even making that argument of Obama's plan right now!  So to be concerned that Democrats are going to make the same kind of argument (Republicans are going to take your money away) - I don't think that's really fair.

 

All it boils down to is how you want to distribute money.  You guys don't want to give tax credits to people who aren't paying taxes.  That's fine, I don't personally mind it, but it's a perfectly valid position.  But I don't think it's as big of a deal as you're making of it.

 

I guess my problem is that I feel like I'm being deceived.  I realize it's mostly because of the need to keep everything short and sound bite friendly, but saying "a tax cut for 95% of Americans" is deceptive.  It's obviously a double-edged sword, but I think if he said "the additional taxes I'm going to collect will be distributed as checks to most of the 44% of Americans that don't pay a penny as it is," people would have a much different response.  Especially when you consider the fact that redistribution of wealth is one of the main economic principles behind communism.

 

Another issue is that one of his additional tax credits is more mortgage interest tax credits.  Have we not learned that incentivising mortgages/lending leads to terrible problems?

 

I just want better educated voters...but I know it's a lost cause.

post #13 of 21

Well that almost goes into an issue of semantics.  Everybody pays taxes in one form or another.  Even if you're not paying income tax, you're still paying sales tax, gas tax, etc. etc. etc., so the net result is a tax cut even if it's not specifically an income tax cut.  And you can even argue that going from zero to negative income tax payments is basically an income tax cut.

 

As for the redistribution of wealth, again you can make that argument for any tax system except maybe a flat tax.  Even then some people are going to benefit more than others.  Taxation in itself is basically a form of wealth redistribution.

 

As for the mortgage tax credit, that's just a reaction to the recent housing crisis.  I view it as more of a repair measure than an incentivising measure.  It's aimed at helping people who already own houses not to be foreclosed on.  Hopefully people have learned the lessons of the recent crisis when it comes to buying homes above their means.

 

I certainly agree with your desire for better educated voters!

post #14 of 21
Quote:
Originally Posted by dana1981:

 Hopefully people have learned the lessons of the recent crisis when it comes to buying homes above their means.

 


 

Unfortunately, many do not understand the process or the implications of compounding interest on a 30 year mortgage, not to mention exotic financing structures... which is why they made either uninformed decisions on the loans, or were decieved as in some cases.

post #15 of 21

I don't really have anything to add, dana pretty much covered it, everytime I wanted to jump in I would read the next post and there'd you'd be.

 

As for the people not understanding the loans, we bought a house that is considered well below our 'means' by our banks and conventional 'wisdom' but when I actually looked into it and read through what you should be able to save, what you should be spending on this and that and yada yada yada I found that we are almost exactly where we should be on the precentage of what we are spending on our mortgage out of our after tax income, and am glad we went no higher. I was really supprised- especially as my husband is a banker so you would think he would have known this, but that goes to show that most americans, including the banks themselves, have a skewed view of what is considered within you means when it comes to buying houses.

post #16 of 21

Hehe thanks Kay.  McCain/Palin have really been harping on this issue ever since Obama made that comment to "Joe the Plumber" about spreading the wealth.  Now a bunch of conservatives are freaking out that Obama is a socialist.  It's pretty ridiculous.  It's also funny because the Obama campaign surfaced a clip of McCain saying almost the same thing back in 2000 when someone suggested he was being too socialist, about how the wealthy can afford to pay a little more.

 

Regarding mortgages, I had a similar experience.  When we bought our house a few years back, we were still in grad school and not making much money.  At the time, the mortgage was a big chunk of our income.  Now that we've got 'real jobs', it's much less so, but when I look back it's almost hard to believe that we got approved for that mortgage at the time.

post #17 of 21

I agree, mortgages are shocking when it comes to approvals, but I have to say thank you to that...in a way.  Not many single women in their twenties own houses, and without the government bond money, and down payment assistance programs that everyone is shooting down these days, I wouldn't have a house.

 

It's a matter of responsibility, and it swings both ways.  I think that the gov't wanted to believe that people would be responsible with their money if they were given breaks.  The unfortunate thing, is that people get used to these breaks and begin to expect them.  This is a time when the next president really needs to find that thin line bordering between responsible citizens who will use the money wisely, and those who simply aren't smart enough to get it.  Before I was approved for my FHA, I had to take a budgeting/first time home buyer course.  These are the things we need to do, give out the incentives, but require education as a qualification.  Do everything we can to teach citizens how to use their money wisely, and then let them choose the smart path or the path of mistakes.

 

I know this will sound scary and not too wise to most people, but my mortgage is literally half my income.  But if that other half is used wisely, then it actually is doable.  I am definitely not saying it is a good idea, but sacrifices will always be made for benefits.  I would prefer that citizens spend half their income on positive debt, like property, than half their income on rent, which has no positive growth!

 

Now that is how you get educated voters - dangle money in front of them and then require that they take credit courses or budgeting seminars in order to get it.  Obviously some will weasel their way out of it or not pay any attention, but if they make a mistake, the penalties will be higher.

 

You are right, nothing should be given away for free, but if you have to meet requirements and make sacrifices, it isn't free.

post #18 of 21

Yeah as I recall, our mortgage was initially actually a bit more than 50% of our net income.  Now it's around 38%, which is manageable, but I remember at the time they told us we were in the risky range for approving the mortgage (based on the percentage of our income), but they did it because we had good credit history and such.  Still, it's hard to believe that was approved in retrospect.

 

I like the idea of requiring a first time homebuyer/budgeting course before approving a home loan.  That's smart.

post #19 of 21

I agree. I think our martgage is right at 24-25% of our after tax income, i'm not really sure what it is pre-tax. But I think the idea of a budgeting class is wonderful. When my brother and his wife bought their first home they were part of a government deal in their city (independence, mo) where if they went to so many budgeting and home maintanance classes they got 5k to put towards their home. I wish we had that here!

 

Quote:
 

Originally Posted by dana1981:

Yeah as I recall, our mortgage was initially actually a bit more than 50% of our net income.  Now it's around 38%, which is manageable, but I remember at the time they told us we were in the risky range for approving the mortgage (based on the percentage of our income), but they did it because we had good credit history and such.  Still, it's hard to believe that was approved in retrospect.

 

I like the idea of requiring a first time homebuyer/budgeting course before approving a home loan.  That's smart.


 

post #20 of 21

We are in the process of looking for our first house and we couldn't believe how much the bank was willing to lend us. About three weeks ago we were making an offer on a house, and the bank was happy to lend up to about 50% of our net income, which was a lot more than we were comfortable with considering my wife is still in grad school full time.

 

I wish they would do something for student loans. We will have about $400 a month in student loans repayments eventually, which is a decent amount of money each month - far more than any tax cut we are going to see. It bothers me that student loans are run as a business here - why can't the interest rate be around the inflation rate? Student loans are a fact of life for most 20 somethings these days, and a generation of people owing large amounts of money before they buy a house is going to have a significant effect upon the economy in the future.

 

 

 

 

post #21 of 21
Quote:
Quote:

I've never heard anything partisan about the The Tax Foundation or the Tax Policy Center though, and they are the basis for most of these numbers (I could be totally wrong).

The Tax Foundation is the source for a lot of bad information.  This organization was founded in 1937 by Republicans to oppose Social Security.

 

For background

Tax Foundation Figures Produce Misleading and Inaccurate
Impressions of Middle Class Tax Burdens

http://www.cbpp.org/5-10-99tax2.htm

 

The Tax Foundation stat that is most misleading is that "43%" of American tax filers pay no income tax. 

http://www.taxfoundation.org/research/show/1410.html

 

Read the misleading logic on this page:
"During 2006, Tax Foundation economists estimate 43.4 million tax returns (from) 91 million individuals face a zero or negative tax liability…out of 136 million federal tax returns. Add 15 million households and individuals who file no tax return at all, roughly 121 million Americans—or 41 percent of U.S. population—will be completely outside the federal income tax system in 2006."

See real IRS data here
http://www.irs.gov/pub/irs-soi/06in11si.xls

Out of 92,713,707 tax returns with taxable income, 5,987,541 paid no income tax. Only 6.5% of those with taxable income paid no taxes.

Tax Foundation inflated its claims in a number of ways.  One way is the Tax Foundation counts 8 people in every of the 15 million household who file no tax return.

 

The misinformation is real bad from conservative sources.  You need to check the source material for their claims.  Fortunately the Web allows yo to find primary source data to discern the truth.

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