While the nation celebrates the election of our first African- American president, economic volatility and a looming recession refuse to move from center stage. President-Elect Obama looks forward to Democratic majorities in Congress and will likely have the opportunity to pass policies radically different from the last eight years. However, as displayed by the media frenzy following Obama’s comments with the infamous “Joe the Plumber,” the future president’s intentions for our country remain unclear. Opponents of his plan call it “socialism,” while Obama claims such people make “a virtue out of selfishness.” In any case, it appears that perspectives on his polices will follow partisan lines. But however the different parties interpret Obama’s policies, the facts of Senator Obama’s tax plan are irrefutable.
The primary components of the president-elect’s tax plan include refundable “tax credits.” The Wall Street Journal explains that a refundable tax credit is “refundable” even to people who do not pay any form of income taxes. In essence, then, people will receive a check from the government despite the fact that they never paid any taxes in the first place.
For example, the “credits” Obama wishes to grant include a $4,000 credit for college tuition, a “savings” credit of 50% up to $1,000, a child care credit of 50% up to $6,000 per year, and a $500 tax credit that phases out at $75,000 per individual. The president-elect’s plan will create an entirely new form of government expenditures and rebates to middle- and lower-class Americans. This will include over 20 million Americans that do not pay a dime in income tax towards the federal government.
The Tax Foundation estimates that 44% of tax filers would have no income tax under Obama’s plan, while the Heritage Foundation’s Center for Data Analysis estimates that by 2011 an additional 10 million people would not pay taxes but would still receive payments from the IRS. The nature of these handouts is unmistakable as a modern redistribution.
The Tax Policy Center estimates that, over the next 10 years, Obama’s tax credits would add a $1.054 trillion burden to our federal budget, up from $647 billion. Assuming Obama enacts his additional programs and policies, our federal government will operate on a budget easily over an astounding $4 trillion. Our government budget currently stands at $2.7 trillion, plus a $400 billion deficit.
The funding for such a massive increase in government expenditures, Obama argued early in his campaign, will be paid for through higher tax rates on the wealthiest 5% of Americans, or persons with an income over $250,000. Yet, while higher tax rates can be expected of the wealthy, families with an income around $40,000 will see tax credits disappear at a rate of 40 cents on every extra dollar earned.
However, the exact cutoff for tax increases appears to be loosely defined. Recent comments from Vice-President- Elect Joe Biden and Governor Bill Richardson have raised some eyebrows. Biden stated in an interview that they would not raise taxes on people making under $150,000 while Richardson said they would not do so for those who make under $120 ,000. An Obama ad prior to those state – ments claimed that persons making under $200,000 would not see their taxes increase. While the exact number seems variable, it is safe to say that American people making into six figures should brace themselves for tax hikes.
Obama’s website claims the income tax rate will be just short of 40% for those that make over his plan’s cutoff income. The capital gains tax, as stated on his website, will be around 20%. Furthermore, the President-Elect wishes to add an additional 2-4% tax on top of the re-emergence of the 12.5% payroll tax following the expiration of the Bush tax cuts for those making above his cutoff income. However, while these numbers from the President- Elect sound acceptable, the Heritage Foundation states that the tax rate for wealthier Americans could be at upwards of 55%, not counting state and local taxes. This would put America among the ten highest tax rates in the world.
Thus, as the Heritage Foundation claims, it appears this country is on track to have the highest rate of taxation since the Carter years. Given the nature of Obama’s tax plan, the American taxpayer will have to learn to accept higher tax rates or free government “credits” as a side effect of increasing government control over the economy.
The infamous “Joe the Plumber,” Samuel J. Wurzelbacher, explained Obama’s tax plan thus, “…he’s breeding mediocrity in America.”