Interesting Perspective on Tax Plans

Interesting Perspective on Tax Plans September 17, 2008

This chart is scaled by the number of people in each category (Hat tip: Justin Wolfers)


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  • Knuckle Dragger

    The blue area is the portrait of socialism and vote-buying. The red area reflects tax breaks for the people who actually pay the taxes and make the investments that create jobs in this country.

  • David Nickol

    Knuckle Dragger,

    To quote Eduardo Peñalver over on dotCommonweal:

    It sure is strange how things that seem good for the poor are really quite bad for them, but as it turns out, things that seem good for the rich are actually good for them, and not only for them, but for the rest of us as well.

    How could anyone even dream that people in the lower income brackets should get a tax cut? Their taxes should probably be increased in order to give them an incentive to work harder to increase their take-home pay.

    Tax breaks for the rich create jobs. Like when the rich buy $6000 shower curtains, it give a great boost to the shower-curtain industry.

  • Well, we’d get more under McCain. What kind of federal tax do people with income under 20k pay ?

  • I find it highly amusing that talk of restoring tax rates to where they were under Clinton, under Reagan even, wil somehow have an adverse impact on the economy. Trickle-down has always been convenient nonsense.

  • RR

    “What kind of federal tax do people with income under 20k pay ?”

    Roughly $1,250. Obama would cut that nearly in half.

    The cutoff is around $150,000. Those making more are better off under McCain.

    This is McCain’s most blatant flip-flop. He once sided with Obama on tax burden distribution. He voted against the Bush tax cuts and vowed to vote down extending them. Now he not only supports the Bush tax cuts but he wants to take it farther.

  • DC

    Actually people on the lower end of the income scale pay plenty of taxes-state, local, and federal. The anti-tax right almost always limits its critique of taxes to the progressive income tax. The other big federal tax is the regressive payroll tax, which for most wage earners is actually a bigger bite out of their paycheck (compare the boxes on your next paystub and see where you are). So the right’s opposition to taxes is almost always opposition to progressive income taxes, not the taxes that actually hit the lower income folks harder. Next time you hear, for example, someone calling for a “flat tax,” ask if they mean income taxes, payroll taxes, or both. You will quickly find that they usually just oppose progressive taxes, but want to leave the regressive ones in place. So the notion that the rich pay more in taxes is only true if you look at only one kind of tax, which those on the right usually do.

  • Taxes should be proportionate to what one receives in return, ie very little in this country. Why should one have to pay tax on one’s income, not to mention a third ? For what ? Charge fees based on usage. There’s no maternity leave, only little vacation time, college isn’t free – other than the military, what is one paying for that one actually uses ? Charge drivers a freeway tax, parents a school tax etc. Instead, the government moloch takes one’s money and wastes it. At least it’s not Europe, where the successful are punished like one wouldn’t believe. Not to mention the lack of freedom of enterprise. Want to give to “the poor” ? Give it directly to “them”.

  • Except that this does not take into account McCain’s proposed doubling of the per child tax exemption. For my family, under McCain, we would have a $28k child tax exemption. That far, far, far outweighs the help that Obama claims he would provide.

    Under the current tax system, a family of five pays _no_ income taxes if it makes under about 50k and has a house. If you’re single or have no children, yes, you’d pay some. On the other hand, if you’re single or have no children you have far fewer expenses and are effectively far better off than the people who make the same as you and yet have a number of dependants.

    Basically, the reason why McCain’s tax cuts looks like they unduly affect the rich is because the rich already pay the vast majority of the taxes. If you decided to cut all tax brackets by 5%, the result would help the rich far more than the poor in absolute and percentage terms — but only because the rich already pay the vast majority of all taxes.

    Sheeesh. You’d think an economist get this stuff — if he wasn’t an extreme partisan…

  • Actually, McCain’s plans to increase the dependent exemption is included in the analysis The Tax Policy Center is very well-respected and thorough– I think you are the one being partisan here.

    And can we please put this nonsense to bed about the tax cuts unduly affecting the rich because the rich pay more? The chart I show gives the distributional impact (like the one I showed before based on quintiles). It shows the highest percentage tax gains under McCain go to the rich, and under Obama, to the middle class and poor. We’re not talking about absolute gains here. Incidentally, Wolfers does provide a chart that shows compares the plans by percent of total tax burden. Here, obviously, what happens to the rich (either up or down) is significant. And this shows the overall cost of the plan. Bottom line: Obama’s modest tax increases on the rich generate enough revenue to easily pay for the middle-class tax cuts. McCain on the other hand, is relying on the tried-and-tested Republican game of deficit spending.

  • Mark DeFrancisis

    As someone put it today, in response to the false claim that Obama will raise the majority of Americans taxes:

    “Republicans lowered my taxes, and will keep them low. But the value of my home has dropped 20%, my health insurance costs have doubled, gas costs $4 a gallon, and my investments are in the tank. Please, tax me.”

  • Mark DeFrancisis

    A progessive task code has worked most finely in our country’s history, BTW.

  • love the girls

    Set the tax at 1% with families with children or those making less than $100,000 not paying any federal taxes.

  • RR

    “Basically, the reason why McCain’s tax cuts looks like they unduly affect the rich is because the rich already pay the vast majority of the taxes. If you decided to cut all tax brackets by 5%, the result would help the rich far more than the poor in absolute and percentage terms — but only because the rich already pay the vast majority of all taxes.”

    Wrong. McCain doesn’t want to cut all tax brackets. Just the top ones. McCain would cut the taxes of the top 10% of earners by 3.4%. The bottom quintile would see a 0.2% tax cut.

  • RR

    “Republicans lowered my taxes, and will keep them low. But the value of my home has dropped 20%, my health insurance costs have doubled, gas costs $4 a gallon, and my investments are in the tank. Please, tax me.”

    Right, because had we had a Democratic president, we wouldn’t have had a credit crisis and a carbon tax would’ve made gas cheaper somehow. The problem with Democrats is that they don’t know jack about the economy. In that respect, they have a friend in McCain.

  • Mark DeFrancisis

    RR,

    What party is Phil Gramm from?

  • TeutonicTim

    I wonder how much of the “saved” money would be eaten up by the extra cost of oil/gas products after Obama TAXES the crap out of the “Big Oil” companies.

  • TeutonicTim

    Trickle down does indeed work. Tax the people that make the things we buy, and I guarantee that the costs get trickled down to us.

  • Knuckle Dragger

    “Bottom line: Obama’s modest tax increases on the rich generate enough revenue to easily pay for the middle-class tax cuts.”

    OK, so how does he pay for his massive social programs? Obama has voted 94 times to either raise taxes or not extend tax breaks. He will raise everyone’s taxes no matter what he says now. Look at his record.

    Hide your wallets!

  • What massive social programs? If you want to argue here, you need facts, not Faux News soundbytes. The reality is that McCain’s fiscal plan would cause the deficit to mushroom. Obama certainly promises new spending, but nothing on this scale.

  • RR

    MM, you’re the one who said that Obama is offering universal healthcare. Will that pay for itself like trickle-downers claim that tax cuts will?

  • Jeremy

    Why is it that the most hotly debated tax and highest tax is about our labor. Why don’t we pay more attention to Capital Gains and other investment taxes. I have to work for my income, but dividends and capital gains just show up. Why do we tax our first dollars to live on, but then give such large breaks once we manage to scrape up some extra (or have it given to us)? You would think it should be the opposite. Free money should be taxed higher than work money.

  • Gary Keith Chesterton

    Well, my wife and I have managed to make some investments that have worked, have increased in value. Even through the disasters of the past week, they’re still valuable. We are not “wealthy.” We are trying to make a secure retirement possible.

    Yet we dare not take our profits yet, because of the punishing capital gains tax. Maybe we ought to, since tht tax looks to increase under Obama.

    Not everyone who makes capital gains is Mr. Money Bags from the “Monopoly” game.

  • RR: in the short-run, probably not, but in the long-run, yes.

  • RR

    Jeremy, capital gains and dividend taxes, are taxes on income we already paid taxes on before we invested it. Ideally, we’d be able to exempt investments the first time around then tax it at the usual income tax rates when gains are realized.

    “Yet we dare not take our profits yet, because of the punishing capital gains tax. Maybe we ought to, since tht tax looks to increase under Obama.”

    There will be a massive sell-off if the capital gains tax is raised.

  • Jeremy

    LOL,
    are taxes on income we already paid taxes on before we invested it
    So is the payroll taxes taken out of my paycheck, so is the gas taxes I pay, the car registration… et. al.
    Encourage small fund retirement, I’m all for that, but the principal that money from the sweat of your brow should be taxed more and higher than money that has been invested (or inherited) is objectionable. The purpose is to maintain the class status quo. Rather than explain how the economy will go bust if we raise the capital gains tax rate, tell me why labor should bear such a high tax burden compared to income from speculation and inheritance?

  • The chart which you show is based on the WaPo charts, which are showing the percentage change in after tax income under the two plans. (Looking into TPC study, it’s impossible to tell what assumptions about family size were made in rolling up these calculatings — and there are also some differences in philosophy between the Obama and McCain plans. For instance, Obama provides an expanded child care credit, while McCain significantly increases the per child exemption. This would work great for families like his, in which you have a small number of children and both parents work, but not at all for families which don’t use child care, either because only one parent works, or because they can’t afford formal child care and the kids are at a relative’s house.)

    However, the problem with looking at percentage change in after tax income is that it gives rather strange results when you look at people who don’t pay taxes anyway.

    For instance, say you have a family of five that makes 45k per year. Their tax rate is 15%, but if they have a house, you can bet that they actually pay no taxes. So if you cut their rate from 15% to 10%, their after tax income remains the same.

    (This is why the WaPo chose to run charts showing changes in after tax income, not taxes paid.)

    If you pay no taxes, you can’t really get any benefit from the “tax cut”. Obama gets around this by providing tax credits which are issued out as payments even if you don’t owe any taxes. Thus, a family that might previously have paid -$120 in income tax (via the per child tax credits) goes to “paying” -$1000 in taxes.

    Sure, that cash will be very, very useful, but it’s disingenuous to talk about it as a “tax cut”. We’ve already reached the point where “the poor” and just about all of the “lower middle class” pay no income tax at all. That’s why an honest tax cut strategy does not appear to benefit them much. What Obama is doing is sliding redistribution in under the cover of “tax cuts”. If he wants to redistribute money, he should just be honest about it.

    Personally, I think they’ve both wrong. Given the financial straights we’re in we shoudl basically leave taxes where they are, with the only possible changes being fixing the AMT so it doesn’t single out large families, and cutting the corporate tax to put it more in line with those in Europe.

  • RR

    “So is the payroll taxes taken out of my paycheck, so is the gas taxes I pay, the car registration… et. al.
    Encourage small fund retirement, I’m all for that, but the principal that money from the sweat of your brow should be taxed more and higher than money that has been invested (or inherited) is objectionable. The purpose is to maintain the class status quo. Rather than explain how the economy will go bust if we raise the capital gains tax rate, tell me why labor should bear such a high tax burden compared to income from speculation and inheritance?”

    Jeremy, the payroll tax is a tax on pre-tax income. Gas taxes are indeed on after-tax income but gas should be taxed more than other goods or services to account for externalities.

    Money from the sweat of your brow is taxed less! The top income tax bracket is 33%. For capital gains it’s 33% + 15% or 48%. What you are proposing is to tax savings twice at 33% each for a total of 66%! Another way to put it is to say that those who spend are taxed at 33% while those who saved are taxed at 66%. Does that seem fair to you? It doesn’t to economists which is why most, both liberal and conservative, hate double taxation.

    I have no problem with raising the upper brackets but let’s not penalize saving.

  • jeremy

    Payroll tax is taken pre-tax, and not counted when other taxes are taken out. Hence, my paycheck is ‘double-taxed’. I live in a state with sales tax, so well over half of my income is taxed again. Double taxation is not a ‘moral’ issue, if it was, we are all being abused beyond belief.

    I don’t think your analysis of Capital Gains is correct, and a quick scan of wikipedia leads me to believe that your numbers are in error, and that the gains rate is not added to the ordinary income rate, but rather instead of the ordinary rate.

    The governement is spending money, and taxes need to be levied. Somebody has to pay the bills.

    Savings are not taxed, but income and gains are. Why is it that money you work for is taxed at a higher rate than money you get from others working?

  • RR

    Sorry, my math was off but the point was that capital gains is taxed again. Capital gains are not free. Just as you get a benefit from buying shoes, you get a return from buying stocks. You aren’t taxed on the benefit you derive from the shoes. Whatever benefits come from them flow tax-free. Returns on investments should be the same but it isn’t. Your return that you “bought” with after-tax dollars is taxed again. Just because one benefit is monetary doesn’t mean it should be taxed more. That is why taxing capital gains, distorts incentives. A consumption tax (i.e., a tax that exempts savings) treats all activity neutrally. Treating all activity neutrally may not be a moral issue but it is economically desirable.

    If sales tax is double taxation, capital gains tax is triple taxation (income, capital gains, and finally sales when you spend it). If you want to have an across-the-board double tax, capital gains should be taxed at the sales tax rate and whatever we buy with it should be exempt from sales tax.

  • Jeremy

    Sorry, my math was off but the point was that capital gains is taxed again.
    Perhaps you are thinking of dividends? With capital gains, you are only taxed on your gain, not the sale price.