About Those Tax Plans
Earlier today, Uncle wrote:
I can’t find where taxes are lower for anyone under Obama’s plan.
If that’s true, then he’s not looking or not paying attention. See the non-partisan Tax Policy Center’s report (PDF) on the two candidates tax plans. In particular, note Figure 1 on page 41 — for the bottom four quintiles, both candidates cut taxes, but the average increase in after-tax income as compared to current law is much larger under Obama’s plan than it is under McCain’s:
The top quintile is the only group for which the average after-tax income goes down under Obama, and the detailed numbers (e.g., Table 4, Page 33) show that you’d have to be in the top 1% of taxpayers to see a decrease in after-tax income:
Under the Obama plan, families in the middle quintile would see their taxes go down by an average of $1,035 in 2009 as compared to current law (Table 3, Page 32):
Whereas under McCain’s plan, the average tax savings for that same quintile is only $325 (Table 6, Page 36):
For the middlest of the middle class (for lack of a better description), the average tax savings in 2009 under Obama is more than three times what it would be under McCain. Even for the upper-middle class (the fourth quintile), the increase in after tax income would be half again as large under Obama (+2.4%, Table 4, Page 33) as compared to under McCain (+1.6%, Table 9, Page 39):
Bottom line: If you’re not in the top 10%, your taxes will go down, and if you’re not in the top 1%, your taxes won’t go up. Further, if you’re in the bottom four quintiles, your taxes will be lower under Obama’s plan than they are under currently, and lower than they would be under McCain’s plan.
Now, of course, all of these reports assume that the candidates would actually be able to get their tax plans passed as proposed, and if you believe that of either candidate, I’ve got a bridge in Alaska to sell you, especially in light of the current state of the economy. But the point is that according to their stated plans, taxes would be lower for the overwhelming majority of taxpayers under Obama than they are under current law, and lower than they would be under McCain. You can argue about the fairness or lack thereof — and the fiscal responsibility or lack thereof — of the two plans, but it’s either ignorant or disingenuous to state that “taxes [won’t be] lower for anyone under Obama’s plan.”
Crossed at Lean Left
[UPDATED for clarity]
October 15th, 2008 at 3:54 pm
yes, the ones that will benefit the most are the ones that dont pay taxes at all… they will get more money back at the end of the year than they already do.
of course that group is also the most likely to be unemployed when the taxes are raised on the people that own the businesses that they work for, but that’s ok, the messiah will take care of them.
October 15th, 2008 at 4:16 pm
So, I say taxes aren’t gonna be lower under OB’s plan compared to current plan. And you say Yeah, but McCain . . .?
The WSJ disagrees.
October 15th, 2008 at 4:28 pm
chris:
You make a common but annoying mistake: You confuse not paying any income taxes with not paying any taxes at all. You’re forgetting the regressive FICA taxes, for example.
Uncle:
Huh? The report I cite shows how much people will pay in taxes as compared to current law, and shows that the overwhelming majority of taxpayers will pay less under Obama’s plan than under current law or under McCain’s plan. How does that constitute me saying “but McCain?”
And you’ll forgive me if I don’t accept the WSJ’s ultra-right-wing editorial page as a reasonable source of information about the two competing tax plans. Although I must admit some amusement by the newspeak that says that anything that results in you paying less taxes but isn’t a marginal rate cut does not constitute a “tax cut.”
October 15th, 2008 at 4:32 pm
and i’ll, of course, not take the brookings and urban institute funded tax policy center’s word for it as well.
October 15th, 2008 at 4:43 pm
That’s funny, because the WSJ editorial you cited did, when it suited them…
October 15th, 2008 at 4:58 pm
The first chart doesn’t show “taxes paid”, it shows “after tax income”…which, of course, would go up for lower income people and down for higher income brackets with Obama’s patently socialistic income redistribution plan.
The two charts in the middle that purport to show information on the relative tax rates looks very contrived to me. Perhaps it’s just my ignorance…I’m no economist…but when any report or study starts using terms like “Tax Units” and percentages of “tax units” (I sort of was under the impression that the standard unit for taxation was “dollars”, just like every other economic transaction) red flags start popping up all over he place in my mind. How were these “tax units” determined? Was this just a matter of using some sort of intellectual and mathematical gymnastics to create a set of numbers that reach a predetermined outcome?
I can’t really say, but it sure looks suspicious to me.
BTW: What, exactly, is this “Payroll surtax” that they declined to include in Obama’s plans? Does that mean that there is an aspect of Obama’s plan that they simply left out to get the numbers they wanted?
As I said…red flags popping up everywhere.
At any rate, who will get what after the Obamassiah redistributes the nation’s income as he sees fit does not alleviate the blatant and unapologetic socialistic undertones of his “spreading the wealth around” plan.
It is simply not the role of government to decide who is worthy to keep what percentage of what they earn. Taxes are intended to finance the government, not to socially engineer the populace…Obama’s plan (and probably McCain’s plan to a lesser degree, BTW) will be a disaster for our economy and, as a direct result, for the world economy.
All hands, stand by for heavy rolls.
October 15th, 2008 at 5:02 pm
Conservatives seem to assume that if you don’t pay taxes on April 15th, and instead get a rebate, than you don’t pay taxes. I may get a small rebate, but that is simply because I claim the lowest number possible so I don’t get hit on April 15th.
Now, frankly, I doubt highly that Obama is going to pass his middle class tax credit, or whatever it is, so I’ll assume that my taxes probably won’t be effected…and quite frankly, I’d be fine with a small tax increase if necessary to pay down the debt.
October 15th, 2008 at 5:05 pm
Does the plan factor in the “Bush Tax Cuts”? My understanding was that Obama was in favor of letting them expire, while McCain was in favor of keeping them.
October 15th, 2008 at 5:08 pm
tgirsch,
I make no mistakes about it… I myself fit into that category. I am a father of 3 with a stay home wife, I am a part time college student and I make under $35,000 a year.
I am looking at my paycheck right now. For one week, Fed Tax = 0, Medicare = $15.01, Fica = $64.22, State tax = $33… So total per year = $2059.98 in taxes to the fed and $858 to the state.
Now, my tax return from last year is as follows. Federal refund of over $5,000, state refund of over $1,250.
Under an Obama plan, I would indeed get even more back than what I do now.
But…
The guy that owns my company would get MUCH less, and that might be enough for him to decide that my job position was no longer critical to the continuing operation of his company.
So the choice becomes obvious. I vote for the person that is less likely to make my boss need to cut jobs, that man is McCain.
Of course I couldnt vote for Barack Gunban Obama anyways, but that is an aside.
October 15th, 2008 at 5:56 pm
Sean:
If your rebate is equal to or greater than what you paid in during the year, then you didn’t pay Federal Income Taxes. Under the EIC system, you receive a rebate based on how much you would have gotten back had you made a certain amount based on you and your family up to $40,000. Based off of that refund, it’s not hard to pay little or no taxes.
So, an even larger percentage will get more back in taxes than they paid or pay little or none while bilking those who made more than $250K.
Anyone w/ any basic sense will recognize that whoever is making that amount + will start charging more for whatever they’re doing to earn those high figures and that WILL trickle down in the form of higher costs and/or job cuts. Just like the minimum wage hike in IL did.
October 15th, 2008 at 10:10 pm
Both my husband and I finished post-graduate degrees, and we are now self-employed. Last year, I paid 30% of my income in federal income tax. Luckily Texas has no state tax, or we’d truly be in the poorhouse. Add onto that, the federal 15% self-employment tax. What the hell is self-employment tax? What am I getting for this additional 15% that I’m paying? Husband still owes about $80,00 in student loans. We are now paying estimated tax. . . for those who don’t know what that is, that’s income tax for NEXT year that we have to pre-pay, or else we pay a PENALTY. So let’s add that together, shall we? 30% + 15% + 30% = 75%. 75% of my income goes to taxes. Needless to say, as much as my husband wants to hire a secretary, HE CAN’T. And medical benefits for employees. Fuck that.
We make about $200,000 a year. After taxes, that’s about $70,000 a year. Why again did we bother going to post-graduate school? I could go back to working at McDonald’s and have better hours and less taxes. Seriously, it doesn’t pay to be self-employed anymore. If Obama thinks taxing people who make more than $200,000 is going to help me, then I don’t want his help.
October 15th, 2008 at 11:33 pm
Hmmmmm.
“Bottom line: If you’re not in the top 10%, your taxes will go down, and if you’re not in the top 1%, your taxes won’t go up. Further, if you’re in the bottom four quintiles, your taxes will be lower under Obama’s plan than they are under currently, and lower than they would be under McCain’s plan.”
Bullpucky.
Why?
These tax plans assume people won’t act to reduce their tax burden.
So we won’t really know the result until 2010 at the earliest. But we can know something now. No matter who he has to tax to fund his programs, Obama isn’t going to cut his agenda one single bit.
October 15th, 2008 at 11:34 pm
“Conservatives seem to assume that if you don’t pay taxes on April 15th, and instead get a rebate, than you don’t pay taxes. I may get a small rebate, but that is simply because I claim the lowest number possible so I don’t get hit on April 15th.”
I see you’re fond of stereotypes as long as they aren’t being applied to a racial group. When I was putting myself through college, struggling by on the meager (at the time) G.I. Bill, I actually had such a small income that I got back every penny of my withholding to both Virginia and the Feds AND got even more money from the Earned Income Credit.
I’d also like to point out that the “Conservatives” are basing that “1/3 don’t pay taxes” on actual numbers (otherwise known as “facts”) from IRS future projections, as well as from past data.
http://www.taxfoundation.org/research/show/1410.html
October 15th, 2008 at 11:41 pm
Hmmmm.
“Conservatives seem to assume that if you don’t pay taxes on April 15th, and instead get a rebate, than you don’t pay taxes.”
That’s a pretty ridiculous assumption.
October 16th, 2008 at 12:06 am
Devich:
If you’ve got a take-home income of $70,000 on a gross income of $200,000, you need to get an accountant. And if you have one, fire him and get another one. Assuming a gross income of $200,000, and assuming you don’t itemize, and assuming that you’re married, filing jointly and have no kids, your taxable income after the standard deduction ($10,700) and personal exemptions ($6,800) is $182,500. On that income, your federal income tax bill is $40,092.50. Your self-employment tax, at 15.1% of the first $92,350 of each of your incomes, tops out at $14,130, for a total federal tax bill of $54,222.50, an effective tax rate of 27.1% — a far cry from the 75% figure you cited; that leaves you with an after-tax income of $145,777.50. So you’re going to have to enlighten me as to where the other $75,777.50 went. Looks to me like you paid 2.5 times as much tax as you should have, if your numbers are correct (which, by the way, they don’t appear to be — where does the second 30% come from?).
And mind you, that $54,222.50 is the worst-case tax scenario. Through itemized deductions, you could almost certainly reduce that. And you could probably also claim that
As to what the 15.1% self-employment tax is, it’s a tax that people who aren’t self-employed also pay — the FICA tax. Employees half, and employers pay the other half. If you’re self-employed (as I once was), you’re both the employer and the employee, so you get the double whammy.
On estimated taxes, everybody who pays income taxes pays estimated taxes. That’s what the withholding is out of most people’s paychecks every week. And if, in a regular job where somebody else is your employer, you withhold too little throughout the year and wind up owing a large chunk, you are penalized 10% for this — it has nothing whatsoever to do with being self-employed. It just means more paperwork for the self-employed, because you’re in charge of your own estimation and withholding, rather than having someone do it for you.
Finally, I defy you to get a job working at McDonald’s where your after-tax income is $70,000 per year. Short of owning your own franchise (which puts you back in the self-employed column again), you’re not going to sniff anything like that kind of money. BOTH of you could get general manager’s positions, and you STILL would have a hard time combining to get $70,000 in after-tax income.
Look, everyone hates paying taxes, but taxes are the price we pay to live in a civil society. And for whatever reason, most people seem to grossly overestimate how much they actually pay in taxes. (Your 75% estimate is just plain laughable.)
Laughingdog:
You make the same mistake I complained about above: not paying federal income taxes is not the same thing as not paying any taxes.
October 16th, 2008 at 1:23 am
tgirsch:
The funny thing is that Devich isn’t incorporated if he is self employed (sort of like “Joe the Plumber” it seems). I guess it depends on what Devich does (PCs are different from INCs), but the tax code is completely on the side of small business people from the start.
October 16th, 2008 at 7:39 am
Yay! I gets more free money from Obama, all I have to do is give up my gun rights…
October 16th, 2008 at 9:20 am
Good post presenting what I’m sure you regard as facts. However…
Nonpartisan my ass! Can you seriously say you looked at http://urban.org/about/index.cfm, or even read the opening of the PDF, and think it’s nonpartisan?
Like Sailorcurt, I noticed the exclusion of Obama’s payroll surtaxes from the presentation of his plans.
Like Chris, I noticed that corporate taxes are excluded from the presentations, which are a huge difference in the plans. Corporate taxes are a tax that CEOs and CFOs decide how to distribute between employees (in pay rates, bonuses, layoffs, etc.), shareholders (dividends), and customers (prices). Most of us are customers and employees, and everyone with a 401K that invests in companies that pay American taxes is a shareholder.
Corporate taxes are a ‘regressive’ impact that in this type of graph would show up mainly on the three lower quintiles. Of course, since the exact numbers are based on individual corporate decisions and indidivial consumer’s buying, it would be impossible to include any firm number for them.
October 16th, 2008 at 2:11 pm
EgregiousCharles:
Good post presenting what I’m sure you regard as facts.
If you see anything that I incorrectly identify as a fact, by all means feel free to point it out.
Nonpartisan my ass!
If you have a source you think is less biased, you’re more than welcome to suggest it.
Like Sailorcurt, I noticed the exclusion of Obama’s payroll surtaxes from the presentation of his plans.
It wouldn’t make much difference to the final result. The surtax in question is a proposed 2% payroll tax for each the employer and employee on any payroll income over $250,000. So if your salary/wages amount to less than $250K, the results are unchanged. But let’s unpack that.
Suppose you have a salary of $300,000 per year. Your salary exceeds the $250,000 mark by $50,000. 2% of $50,000 is $1,000 in additional taxes. Add another $1,000 for the company’s share, and you get a whopping $2,000 in additional taxes on a $300,000 income. Holy Redistribution of Wealth, Batman!
Corporate taxes are a tax that CEOs and CFOs decide how to distribute between employees (in pay rates, bonuses, layoffs, etc.), shareholders (dividends), and customers (prices).
You know, that could just as easily be flipped around. When you cut corporate taxes, the CEOs and CFOs decide how to distribute the tax savings among employees, shareholders, and customers. If you think the bulk of that savings is going to go anywhere other than the shareholders, we can start discussing that Alaskan bridge again.
Corporate taxes are a ‘regressive’ impact that in this type of graph would show up mainly on the three lower quintiles.
That may very well be the most asinine argument I’ve heard in a very long time. How the hell do you figure that works? To buy that, you basically have to think that cutting $1 of Wal-Mart’s taxes would have a greater benefit to Joe Sixpack (the plumber?) than cutting $1 of Joe Sixpack’s taxes would. In either case, you’ve collected $1 less revenue. But to whom does that additional $1 make a bigger difference? Your argument says that the $1 saved by Wal-Mart notices the extra $1 more than Joe Sixpack does. That doesn’t even pass the laugh test. Of course Joe’s going to be more impacted if he gets the tax cut directly, as opposed to indirectly through a corporation with which he may not even do any business…
Finally, all of this is essentially moving the goal posts anyway, because Uncle’s argument that taxes wouldn’t be lower “for anyone” under Obama’s plan has been thoroughly eviscerated.
P.S. What part of the Urban link was supposed to convince me that they’re not nonpartisan? The part where they self-identify as nonpartisan in the very first paragraph?
Comment crossed at Lean Left.
October 16th, 2008 at 3:56 pm
i still cannot fathom your idea that raising taxes at all will be a good thing… but like Obama, the solution is apparently “more government”
October 18th, 2008 at 12:17 am
Comment at Lean Left.
http://www.leanleft.com/archives/2008/10/15/6841/