[Guest post by DRJ]
The Wall Street Journal analyzes Barack Obama’s promise to cut taxes for 95% of Americans: Obama redefines tax cuts as tax credits and that results in a massive redistribution of taxpayer money.
Here is a list of Obama’s 7 proposed tax credits:
“- A $500 tax credit ($1,000 a couple) to “make work pay” that phases out at income of $75,000 for individuals and $150,000 per couple.
– A $4,000 tax credit for college tuition.
– A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).
– A “savings” tax credit of 50% up to $1,000.
– An expansion of the earned-income tax credit that would allow single workers to receive as much as $555 a year, up from $175 now, and give these workers up to $1,110 if they are paying child support.
– A child care credit of 50% up to $6,000 of expenses a year.
– A “clean car” tax credit of up to $7,000 on the purchase of certain vehicles.”
The clean car credit is the only tax credit that must offset actual money paid. The other 6 credits are “refundable” because they can be claimed even if you have no income-tax liability. These are income transfers intended to redistribute money from one American to another.
Thus, under Obama’s tax plan, millions of Americans will get government payments in excess of what they pay in taxes, making this a massive redistribution of income far beyond what welfare ever paid:
“The Tax Foundation estimates that under the Obama plan 63 million Americans, or 44% of all tax filers, would have no income tax liability and most of those would get a check from the IRS each year. The Heritage Foundation’s Center for Data Analysis estimates that by 2011, under the Obama plan, an additional 10 million filers would pay zero taxes while cashing checks from the IRS.
The total annual expenditures on refundable “tax credits” would rise over the next 10 years by $647 billion to $1.054 trillion, according to the Tax Policy Center. This means that the tax-credit welfare state would soon cost four times actual cash welfare. By redefining such income payments as “tax credits,” the Obama campaign also redefines them away as a tax share of GDP. Presto, the federal tax burden looks much smaller than it really is.
The political left defends “refundability” on grounds that these payments help to offset the payroll tax. And that was at least plausible when the only major refundable credit was the earned-income tax credit. Taken together, however, these tax credit payments would exceed payroll levies for most low-income workers.“
The WSJ editorial also addresses the impact of Obama’s tax plan on marginal tax rates and explains how they adversely affect lower- and middle-income workers. I addressed that topic here but the WSJ explains it better.
We used to talk about Welfare-to-Work but this is Welfare-that-Won’t-Work. And it’s massive.