Recently CNN ran an article on the McCain and Obama tax plans. The article relies on data from The Tax Policy Center, where you can find more in depth analysis on these plans. Our blog has many fans of simple charts, and the chart associated with the article was particularly helpful, and is reproduced below.
Source:The Tax Policy Center
I don't find any data on McCain's plan very relevant because his plan is a political impossibility with a Democratic Congress. He might as well say he's eliminating taxes and the IRS, and giving every American eleventy bajillion dollars. Any plan of McCain's is at once a fairytale.
This chart refutes the myth that Obama intends to dramatically raise taxes on middle class Americans. Yes, if you make more than 600K, your taxes will go up dramatically. It's more important to look at the bottom end of Obama's chart. Anyone making under 112K will pay less in taxes under President Obama. If only everyone would vote with their pocketbook!
| BREAKING DOWN THE NUMBERS | ||||||||||||||||||||||||||||||||||||
| Here's how the average tax bill could change in 2009 if either John McCain's or Barack Obama's tax proposals were fully in place. | ||||||||||||||||||||||||||||||||||||
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I don't find any data on McCain's plan very relevant because his plan is a political impossibility with a Democratic Congress. He might as well say he's eliminating taxes and the IRS, and giving every American eleventy bajillion dollars. Any plan of McCain's is at once a fairytale.
This chart refutes the myth that Obama intends to dramatically raise taxes on middle class Americans. Yes, if you make more than 600K, your taxes will go up dramatically. It's more important to look at the bottom end of Obama's chart. Anyone making under 112K will pay less in taxes under President Obama. If only everyone would vote with their pocketbook!
Labels: 2008, Barack Obama, domestic policy, economics, John McCain, Joshua Roman, taxation
It's fine, except that no one should pay higher taxes. If Barack could come up with a plan that lowers everyone's, I might be sympathetic.
Tom
Tom: Um, and how would one pay for said tax cuts for everybody? Fairy dust?
To be fair, it's not like Obama's tax plan is etched in stone either. That's kind of the problem with caring about the nitty-gritty details of the plans presidential candidates propose. Most of that stuff is gonna get decided by Congress, not the President, and that's true whether the White House and Congress are controlled by the same party or not (thought obviously the differences between a proposal and an actual plan will be more dramatic if they are controlled by different parties). For another thing, all presidential candidates propose more than they could ever possibly hope to do. That's not necessarily a bad thing, because it's good to get a feel for what a candidate believes in even if there's no hope of it actually happening, but it's still an important caveat.
But looking at this through a broader lens, yeah, clearly Obama's tax hikes target the wealthy and not the middle class, and McCain's efforts to indicate otherwise are disingenuous. If McCain were honest, he would try to argue that raising taxes for rich people is bad for the economy. It's not like there's no argument in support of that point of view (though I would not agree with it). Instead he's just lying. Gotta love that straight talk!
Pay for a tax cut?
You make it sounds as if it's a lamp, arbitrista.
It's our fucking money--just spend that much less of it.
Tom
Although I agree with Tom here, for arguments sake I will point out that tax cuts are paid for by the resulting economic growth which has repeatedly lead to high tax receipts despite lower tax rates.
It should also be noted that nearly all of that extra tax money that Obama would like to take from the rich is indirectly being taken from everyone. The rich dont take their millions and stuff them in a mattress or lock them in a vault. They either spend it or invest it. Either way they are contributing to the economy and creating those middle class jobs. The question shouldnt be how much money do rich people deserve, it should be who will do a better job of directing that wealth - the government or the rich. Set aside obvious conclusions that should be drawn from the fact that the government is broke and the rich are, well, you know. The private economy uses that invested wealth to create more jobs and more wealth for everyone. The government uses that wealth to subsidize those without jobs and those without wealth. Its not being used to create anything; its being used as a bandaid. Said another way, taxing to provide social services is giving a man a fish. Cutting taxes is teaching him to fish.
And apparently Brian has already alluded to my previous point. Thats what I get for skimming the second paragraph.
Tet: Oh, then what you're really asking for is spending cuts. Well, then why don't you specify what you want to cut. Medicare? Defense? Interest payments on the debt? If we're going to have a debate about that, then let's have an honest one, rather than saying "waste fraud and abuse" and "earmarks" or something equally silly.
Kofi: The Laffer curve? You're not really trotting that out, are you? And why aren't you paying any attention to the distribution trends of the modern economy? We've grown steadily over the last several decades, but nearly all of the productivity gains have been monopolized by the top 10% of the population.
In broad strokes, the Laffer curve seems self-evident: If people get to keep more of their money, they will work more. Therefore, decreasing taxes results in more economic activity and eventually, that increased activity results in as much (or more!) tax revenue as you lost by the decrease.
It's easy to understand why conservatives have loved the idea since Arthur Laffer came up with it 30 years ago. Screw this crap about having to cut spending — let's just decrease taxes and everything will magically pay for itself!
The problem is not with the Laffer curve, which is certainly true at some levels of taxation. It's with how it's interpreted. Laffer doesn't say that tax revenues will always increase as taxes go down. Instead, it says there's an optimal tax rate at which both increases and decreases result in reduced tax revenues.
Unfortunately for Laffer lovers, thee's absolutely no evidence that we are currently to the right of that optimal point, where tax decreases will result in more tax revenue; in fact, we're are probably to its left. The effective tax rate on the top 1 percent of earners is less than 30 percent, hardly the kind of soul-killing taxation that makes people stop striving. This has not always been the case. The top tax rate in 1963 stood at 91 percent before Kennedy lowered it, and that helped start the economic boom we've been enjoying since.
If you want to shrink government, that's fine — like Arbitrista, I'm very interested in hearing where these massive spending cuts are going to come from. But it's sheer fantasy to just pretend we can reduce our current tax rates and without affecting tax revenue.
*sigh*. And here is the reason why I hate "simple" charts to describe something that takes people who are actually knowledgable about the process whole volumes of densely packed books to described. It vastly oversimplifies and provides a stilted, narrow, and a poorly thought out view of a difficult problem.
First, as Joshua failed to point out, the study was done by the Brookings Institute, which is a liberal think tank. So maybe they have a bias. Possibly.
Arbistista, you know the thing about the rich supposedly getting all the benefits of economic growth? They also pay the majority of the taxes. So maybe we should quit giving them a hard time, since in terms of "pulling their weight," they pay for all the government programs that the liberals love so much. Per the tax organization (a group which I admit is labeled as a conservative think tank), the effective federal tax rates by quntile, highest to lowest, is 12%, 7%, 5%, 3%, and 1%. http://www.taxfoundation.org/news/show/2282.html. Here is the distribution of the total tax to the Tax Foundation, here was the distribution of total tax burden for the middle income quintile of households in 2004:
Payroll taxes: 32%
Federal income tax: 18%
Property tax: 12%
General sales tax: 10%
All other: 28%
Now, I know Obama says that his credit is to help offset taxes, but still. It is a little lame to drastically cut a small tax and not touch the more burdensome one.
Also, these projections were based on predictions of domestic economic growth over a period of ten years based on what the institute thought would happen over that time. This is helpful because people, in general, have been very successful at predicting economic cycles beyond one or two years. Second, the study freely admits, albeit in the small print not contained in the CNN article, that they don't know half of McCain's or Obama's policies, how they are going to be achieved, and what the effect of those enforcement clauses will be. The Tax Policy Institute would have no clue, for example, how higher tax rates on capital gains would effect the retirement portfolios of the middle class when they cashed out. It is indeed possible that the burden on the middle class will not be felt until beyond ten years, when geezers that they are, they find that their nest egg is being taxed an extra 10 or 20%. That is not an annual tax burden, but a one time sizable tax that I believe was out of the purview of the study. But the tax policy institute has no clue, so they just guess.
In other words, the chart is, if not a lie, is extremely misleading as to its breadth and scope.
First, Brookings is hardly a bastion of left-wing liberalism. It's not exactly the Economic Policy Institute.
Second, my concern about the distribution regards both pre- and post-tax income. The net, inflation-adjusted, post-tax disposable income for most Americans have been fairly stagnant since the 1970's, while that for the top 20% (and particularly the top 5-10%) has risen dramatically. The share of national income that goes to wages has declined precipitously. Yes, the wealthy pay a large and growing share of taxes, but that is because they have been enjoying massive income gains while everybody else has been treading water.
It takes some pretty astounding sophistry to claim that the economy has not been re-distributing income upwards over the last generation.
As for reforming the payroll tax, I'd be happy to make that more progressive too.
Arbitrista, I'll address your points in order.
Brookings is a liberal think tank, and that has been its rep since 1977, recent claims that it is pro-Bush aside.
With regards to the "redistribution of wealth," you and many others who hold your position fail to address why that income has been redistributed. Most assume that it has to be due to some underhanded and inherent "flaw" in the economy, and that a few are able to capitalize on it, while the masses, through no fault of their own, can't and thus should be due some redress. That somehow, the top 1% were born into the right family or used underhanded methods to achieve their wealth and should therefore be punished via higher tax rates.
Even if that were the case, why would a higher tax on current earnings be the best way to redistribute that wealth? The Income Tax taxes current earnings, not past financial sins or blessings. Increasing tax rates on any tax bracket only discourages short term risk taking and economic investment. If you think that economic disparity is caused due to underhanded dealings, reform the corporate law, and stringently prosecute and enforce them with huge fines. If you think that wealth generated from legacies are the issue, focus on raising the estate taxes and redistributing wealth that way. But to suggest that raising income taxes on the wealthy is the best way, or even a logically correct way, to redistribute wealth is disingenuous.
I made no claim that the economy was not redistributing wealth, nor was I claiming that higher wage earners should not pay more in taxes. I think people who make more should, but that springs more out of a religious and spiritual belief (Roman Catholic) than a strictly rational one. I recognize that there may be some rational arguments to this point, although how strong they are and how much the justify exacerbated tax rates between classes, I don't know. So indeed, there was no sophistry here. In fact, I in no way made any of the assumptions which you tacitly acredit to me.
But the concept of how much more a person should pay for their government merely because they are rich, and especially because they arguably receive no greater benefit from that government than their poorer counterparts, can't be stretched ad nauseum. Why should the profits that are generated by the risks that I take as an investor, as a businessman, as a whatever, be taxed to a greater extent than the profits of a person who takes fewer economic risks, and thus makes less?
Most people I talk to about this question usually have answers that boil down to "Just Cause," especially when talking about income tax as opposed to estate or other taxes. Maybe you can provide a better justification than those I have heard before. I look forward to your response.