Details of tax-credit debate can get lost in the slogans
Calls of ‘failed philosophy,’ ‘socialism’
By Michael Kranish
Globe Staff / October 22, 2008
WASHINGTON – As John McCain’s campaign attacks Barack Obama’s tax plans as “socialist,” the Arizona senator is posing a provocative question at rallies: “How do you cut income taxes for 95 percent of Americans when more than 40 percent pay no income taxes right now?”
The answer explains much about what has become a complicated debate over tax policy in the presidential campaign.
McCain is correct when he says that 40 percent of Americans pay no income taxes, analysts said. But the missing nuance is that many Americans who don’t pay income taxes still pay taxes for Social Security and Medicare.
Obama proposes to cut taxes for 95 percent of working Americans (though he sometimes leaves off that “working” qualifier), which means that his plan includes those who are charged payroll taxes but don’t earn enough to owe income taxes.
At least 27 million American owe no income tax but do pay the 7.65 percent payroll tax, with another 7.65 percent paid by employers. In addition, more than half of all workers pay more in payroll taxes than in income taxes, according to the nonpartisan Tax Policy Center.
“When Senator McCain calls me a ‘socialist’ and says I want to give a tax cut to people who don’t pay taxes, he knows that’s not true. My middle-class tax cuts are for people who work and pay taxes,” Obama said in Miami yesterday. “Apparently Senator McCain’s decided that if he can’t beat our ideas, he’ll make up others and run against those.”
William Beach, director of the conservative Heritage Foundation’s Center for Data Analysis, said that he wouldn’t characterize Obama’s tax plan as “socialist,” calling it a “redistribution of income.” But he noted that neither candidate wants to end the progressive tax system under which wealthier people have higher tax rates.
McCain has also complained that Obama wants to give tax cuts to people who pay no income taxes by providing refundable tax credits. McCain is correct that Obama wants to greatly expand the use of such credits. For example, Obama has proposed offsetting the Social Security tax on the first $8,100 of income with a maximum tax credit of $500 for some workers. Obama also has proposed tax credits for education and expanding an existing credit for lower-income workers.
The McCain campaign calls such credits “welfare” because it could mean the government sends checks to people who owe no income taxes.
McCain, asked Sunday on Fox News Channel, whether he thought Obama was a “socialist,” said that Obama’s tax plan matches “one of the tenets of socialism” because Obama has said he wants to “spread the wealth around.”
Yesterday, McCain’s running mate, Sarah Palin, repeated the assertion in stronger terms, telling a rally in Nevada, “Now is not the time to experiment with socialism.”
Democrats have responded by noting that McCain also supports some tax credits that could go to people who don’t pay income taxes. For example, McCain’s campaign website says that under his healthcare plan “every family will receive a direct refundable tax credit – effectively cash – of $2,500 for individuals and $5,000 for families to offset the cost of insurance.”
McCain has said his tax plan is focused on “wealth creation,” a reference to McCain’s support for extending all of the Bush administration’s income tax cuts. Obama wants to extend them only to individuals earning less than $200,000 and families earning less than $250,000.
Campaigning in Florida yesterday, Obama ridiculed McCain’s tax cut plan, calling it a “failed philosophy” that gives “more to those with the most and hope prosperity trickles down to everyone else.”
Until recently, most of the focus on the two competing tax plans has been on Obama’s opposition to tax cuts for those at top income levels. But the McCain campaign’s charge that the Obama plan creates a new level of “welfare” has put new emphasis on Obama’s tax measures geared for lower-income workers.
Currently, lower-income workers can receive the Earned Income Tax Credit, which is paid to workers regardless of whether they make enough to pay income taxes. The credit has long had bipartisan support because it is viewed as encouraging people to go to work, but some conservatives have argued that Obama’s effort to expand the credit goes too far. Now, a family of four earning $24,000 a year gets a tax credit of $3,716. That would go up by $421 under Obama’s plan, said Roberton Williams of the Tax Policy Center.
Article courtesy of the Boston Globe
© Copyright 2008 Globe Newspaper Company.
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It my estimation I wrote:
Michael Kranish that was a good attempt at bending the facts when you said, “. . . At least 27 million American owe no income tax but do pay the 7.65 percent payroll tax, with another 7.65 percent paid by employers. In addition, more than half of all workers pay more in payroll taxes than in income taxes . . .” The reality is that the 7.65 percent you refer to is FICA, it is the only payroll deduction that gets matched by employers is FICA [social security]; so as much as you would like to fool your readers into believing that money is a source of tax revenue, it is merely a bold faced lie or you really don’t know what you’re talking about. Likewise, the statement that “. . . more than half of all workers pay more in payroll taxes than in income taxes . . .” is just another line of krappola; that money is not a source of revenue, as it is refunded at the end of the year when a person’s income tax is figured. Another thing you neglect to mention is that if a person makes $10,000 or less per year they pay ZERO income tax. Nice try, but just because you say so in a quote from the Tax Policy Center . . . doesn’t make it factual. In fact while you’re quoting the Tax Policy Center, here is another fact from them: Obama states that he “. . . will cut taxes — cut taxes — for 95% of all working families.” The Tax Policy Center says that when retirees and children are included only 81% of Americans would get a tax cut under Obama’s plan. The reality is that our tax code has always been of a Marxist sort; in that a portion of our taxes has always went to support those less fortunate. Still, Robin Hood’s [Obama] plan to steal from the rich and give to the poor is an out and out Marxist ideology underwritten and supported by Maoist tactics. The plans major shortfall is that it undermines the desire for Americans to go the extra mile in growing their businesses.
And so EGGHEAD replied:
you clearly need to read before you spout off. Payroll taxes are not income taxes and refer to FICA and Medicare taxes, which are taxed at a regressive rate. 7.65% of my family’s gross income is much easier for me to give up than 7.65% of someone living near the poverty line. You should read before you write. Gettyleigh,
you clearly need to read before you spout off. Payroll taxes are not income taxes and refer to FICA and Medicare taxes, which are taxed at a regressive rate. 7.65% of my family’s gross income is much easier for me to give up than 7.65% of someone living near the poverty line. You should read before you write.
Hmmmmmmmmmmm . . . . . , In my best “Droopy Dog,” I thought “now you’ve made me mad!” But to no avail . . . Kranish had already shut down the comments section . . . as I suspect Kranish is actually the EGGHEAD . . . he might as well suffer my wrath in the here and now! My reply to the EGGHEAD is:
Egghead sums it up egghead . . . and I mean that in the negative vernacular. Your right payroll taxes are not income taxes. And I welcome you to illustrate where I inferred that they were. Contrary to your belief, payroll taxes do not exclusively refer to FICA and Medicare. Inclusive are the federal, state, and, local TAXES, which are in fact TAXES. Likewise, they are not regressive, as they are computed at progressive rates depending on your gross wages (*pages 38-39*). As I previously stated, **7.65%** is the percentage rate at which a person is required to contribute to **social security** and is matched by their employer. Should you be interested, the **Medicare rate is 1.45%**. It is exactly what Michael Kranish is speaking of; and it is not a tax Egghead, it is a contribution to a retirement and disability fund should you become unable to work prior to your retirement. In any case, the federal, state, and local payroll taxes are an amalgamated entity, along with your income tax, when figuring out your taxes at the fiscal year’s end. As someone who prepares taxes, quarterly statements, and calculates payroll deductions and actually done payroll for a business, I implicitly am aware of the intricacies of taxes and payroll deductions. In my previous post I merely expressed that the taxes Kranish spoke of were not a source of revenue. However, since you are the Egghead that you are, I will spell it out for you: at the end of the year, along with FICA and Medicare, there is a specified amount of income tax the IRS expects you to pay . . . its based on your [AGI] “Adjusted Gross Income.” Depending on the amount of dependents you claim on your W4 statements, you pay “X” amount of dollars out of your paycheck towards federal, state, and local taxes, if all are applicable in your state of residence. Based on your AGI, you fall into a specific tax bracket, dependent on that amount. Your insinuation that you pay a flat rate of 7.65 is pure idiocy. Why do I infer that it is idiocy? Because the information is public knowledge; and rather than be informed you would rather run your mouth without taking the time to research the facts. See *IRS Publication 15* EGGHEAD and enlighten yourself to the realities of the tax code where payroll and income taxes are concerned. P.S. if you had a clue, you’d know that we contribute nearly 1/3 of our hard earned money already . . . so yea, I’d been willing to shell out 7.65% if that were all that there was to it too.
*http://www.irs.gov/pub/irs-pdf/p15.pdf*
**http://www.money-zine.com/Financial-Planning/Tax-Shelter/FICA-Tax/**
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