Obama Tax Plan: Back To Welfare?

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Obama Tax Plan: Back To Welfare?




By INVESTOR'S BUSINESS DAILY | Posted Thursday, October 02, 2008 4:20 PM PT

Obamanomics: To those of us who can still tell the difference between a tax cut and a government handout, the Democratic plan for "relief" looks more like a blueprint for dependency.

In the first presidential debate, Barack Obama repeated a claim he has made many a time — that his economic plan would cut taxes for "95% of working families." But is this really so? Yes, more or less, but only if you accept Obama's definition of a tax cut. And doing that may force you to leave your common-sense zone.

First of all, "working families" does not include all households. Throw in singles, retirees, students and the unemployed, and the share getting some tax-related benefit is a good deal less. The Tax Policy Center, a group affiliated with the center-left Brookings Institution and Urban Institute, says only about 80% of households would get a cut.

Then there's the difference, not acknowledged by the Obama camp, between a real tax cut and the type of "tax relief" that looks suspiciously like welfare. A true tax "cut" is a reduction in the taxes you're paying. In contrast, much of the "relief" in Obama's plan consists of "refundable credit" — payments you get even if you owe no taxes at all.

The plan does have some real tax cuts, such as the extension of President Bush's cuts for families making under $250,000. This relief is significant — though John McCain would go further and provide it for everyone. However, so are Obama's new or expanded refundable credits. These include, with five-year costs estimated by the Tax Policy Center:

• The "making work pay" credit of 6.2% up to $8,100 of earnings. Cost: $323.7 billion.

• A "universal mortgage" credit equal to 10% of mortgage interest for income-tax filers who don't itemize. Cost: $54 billion.

• An expansion of the child and dependent care credit, which would rise from 35% to 50% of expenses and would be refundable for the first time. Cost: $10.6 billion.

• The "American opportunity tax credit" to replace the (non-refundable) hope credit with a refundable credit of $4,000 for college costs. Cost: $58.2 billion.

• Expansion of the earned income tax credit to lower-income workers. Cost: $19.3 billion.

That's $465.8 billion in all over five years, all transferred from the $250K-plus set and going mostly to lower- and lower-middle-income Americans.

Millions of those in line for these benefits pay no income tax, and Obama's plan — both through these credits and a pure-pander policy of eliminating taxes for 7 million seniors — would increase the nontaxpaying class by millions more.

The Tax Policy Center estimates that the share of households not owing income tax would rise from 38% under current law to 48% under the Obama plan.

Another think tank, the Tax Foundation, says the number of nonpayers would rise from a third of tax filers to 44%.

So how many will get "tax relief" that is really just welfare? The number is impossible to pin down exactly, but it's likely to be huge.

Start with the nonpaying class of 48% or 44%, depending on whose calculation you use. That's well over 60 million tax filers. Many, if not most, of these would probably qualify for at least one of the Obama credits, because it doesn't take much, other than low income, to qualify.

For one of those credits, dependent and child care, you don't even have to have a job. You can simply be looking for one. Taking college courses (and agreeing to 100 hours of community service) qualifies you for the "American opportunity credit."

The most expensive credit, "making work pay," is aimed at low-wage workers but will have to be phased out at higher income levels. As the Tax Policy Center notes, the resulting jump in marginal tax rates in the phaseout zone "might actually give workers an incentive to work less."

What happens to our society and politics when so many Americans no longer expect to share the income-tax burden and instead think "tax relief" means getting checks extracted from "the rich"?

The country is on dangerous ground at such a point, because there may be no stopping the zeal of politicians to pad their majorities even more by squeezing the wealth producers and buying the votes of a new welfare class that once was proud of paying its own way.