Monday, September 01, 2008

Obama's Tax Plan - why it won't work

You cannot cut taxes on the "middle class" much more than already.

What I mean by this, is that the bottom 50% of households don't pay any income taxes or very little.  I calculated in a prior post that a family of four making $50,000 filing joint with two children pay roughly $1,500 in federal taxes using only the standard deduction.  This would be less if they itemize.  Now mind you, $50,000 is above the median income, but is a good proxy for "middle class" for most of the country.  So the median family has an effective income tax rate of 3.5%  How can you cut it more, Barrack?  The top decile already pay the majority of income taxes.

So based on this, there is a limited amount of ways to cut taxes on the "middle class" based on this.  Second, there are not enough "rich people" to soak with massive tax increases.   Most of these people will just work less, thus depressing tax revenues.   So the only way to the Democrat's tax plan to work is to define "rich" as low as possible - probably to the point where you're rich if you're employed.


Anonymous said...


Anonymous said...

I am single with no children and make a lot less than $30k a year. I pay more than $1,500 in taxes per year. Obama's tax plan will help the none child barring non married people who do a lot of the heavy lifting in this economy. I have never been on welfare or gotten food stamps. I work everyday and pay my bills.

Does not people at the lower end deserve some type of relief. The rich people stash their money while the lower bracket people have not choice but to spend because not doing so will mean not having a roof over our heads or food on our tables.

Mitch said...

While I am generally sympathetic to your point, I think the question we should be asking is what is the fairest way to ensure that everybody pays less income tax, and what mechanism to do it.

The current system sucks for people in your situation because even if you own a house, more often than not it does not pay to itemize.

My primary quibble with the O-man's proposal is two fold. First - I do not like nor trust credits. I think it would be fairer to have two brackets - 5% for under 50K and 15% for everything over, but I digress. The point is that is everyone's lowest brackets should be a low rate up to the median income at least.

My second objection is the refundable aspect of it. Everyone should pay a nominal amount of income tax. It will be unhealthy when 51% of the population can vote themselves whatever they want from a government and get the other 49% to pay for it. This leads us down that path. Everyone should have to pay some amount for the ramifications of their voting decisions.

If we are going to have an income tax - a flat tax would be a fairer way to raise revenue without sticking it those who live paycheck to paycheck.