For a few weeks, Barack Obama has been running an advertisement equating McCain's taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cuts to spending when much of the tax cuts are really not anything like spending (most aren't tax expenditureTax expenditures are a departure from the “normal” tax code that lower the tax burden of individuals or businesses, through an exemption, deduction, credit, or preferential rate. Expenditures can result in significant revenue losses to the government and include provisions such as the earned income tax credit, child tax credit, deduction for employer health-care contributions, and tax-advantaged savings plans. s and are just rate cuts). Now John McCain has a new ad entitled "Joe the Plumber" out today that calls Barack Obama's tax plan welfare. Here's a description of the ad courtesy Newsmax:
The ad shows Wurzelbacher telling Obama during a campaign stop in Holland, Ohio: “Your new tax plan is going to tax me more.”
Obama tells him: “It's not that I want to punish your success … I think when you spread the wealth around, it's good for everybody.”
The announcer then intones: “Everybody? Leading papers call Obama's taxes ‘welfare … government handouts.’
“Obama raises taxes on seniors, hard-working families to give ‘welfare’ to those who pay none.
“Just as you suspected, Obama's not truthful on taxes.”
Does Obama raise taxes on seniors? Yes, but it's not as if he is targeting seniors for tax hikes. In fact, Obama's tax policies give preference to seniors versus non-seniors. It's just like Sen. Obama saying that McCain cuts taxes for oil companies. Technically true, but pretty misleading.
The McCain campaign defines "welfare" from this Tax Policy Center table that shows that refundable credits would be about $100 billion under Sen. Obama's tax plan (versus about $53 billion under current law). Is it welfare? Well it's true that it's not much different in principle from TANF (the traditional welfare program), but saying that these people pay no taxes is incorrect. Most of these people still have a positive tax liability when one includes corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es (indirect), excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es, and payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. es.
But this symmetry between tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s and spending should be an indicator to policymakers and the general public that we need to have a more serious discussion on two questions: (1) What should the overall level of redistribution be, and (2) once we have determined this proper level of redistribution (if any), what is the best policy mechanism that attempts to achieve that end? (Is it direct spending programs through an agency like HHS, a special tax provision via the IRS, a progressive rate structure in the income tax that is implicit redistribution depending upon benefit of government spending, or regulatory policy?)
McCain is right to point out that Obama is basically using the term "tax cut" because it sounds good to voters when in fact much of his tax cuts are really no different than government spending. But McCain's health care tax credit is economically eqivalent to government spending as well, even though he would consider that a tax cut.
And on this issue of all tax cuts being good tax cuts unless you reach the floor of a zero income tax, there are many problems with this view held by many on the right. Ask yourself: Suppose Charlie Rangel put forth a nonrefundable "Promoting Liberalism" tax credit that taxpayers would receive for donations to the following entities: Rev. Jeremiah Wright's church, Moveon.org, People for the American Way, Center for American Progress, and ACORN. So if George Soros owed $1 million in income taxes before credits and gave $1.1 million to Moveon.org under this policy, he would owe zero (but it's not refundable). But hey, it's a tax cut. It must be good policy right?Share