15 October 2008

How Do You Get Your Taxes Cut If You Don't Pay Taxes?

Answer: by cleverly redefining the term 'tax cut'!


One of Barack Obama's most potent campaign claims is that he'll cut taxes for no less than 95% of "working families." He's even promising to cut taxes enough that the government's tax share of GDP will be no more than 18.2% -- which is lower than it is today.

It's a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he's also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of "tax cut."

Basically, Obama will 'cut' taxes on low-income earners by making their tax burden 'negative' -- that is, by essentially handing them extra money. Reminds me sort of the whole "it depends on what the definition of 'is' is," from the Clinton era. Germane bit from the article:

Here's the political catch. All but the clean car credit would be "refundable," which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer -- a federal check -- from taxpayers to nontaxpayers. Once upon a time we called this "welfare," or in George McGovern's 1972 campaign a "Demogrant." Mr. Obama's genius is to call it a tax cut.

Make sure you read the whole piece, especially the last two paragraphs about how lower-income earners (up to ~$50k/yr) will be taxed at a significantly higher rate on marginal income (income that represents an increase over current income). As such, low-earners have to work that much harder to improve their economic situation... not exactly helping reverse the 'disappearance of the middle class' that the Dems often get so worked up about.

No comments: