About the 40% That Don't Pay Taxes

Obama's tax break would go to people who don't even pay taxes -- this was a claim thrown out often by the Republicans. It was a not-so-subtle and racially tinged message that was intended to evoke welfare mamas and downbeat dads who would receive your hard earned money. Fact Check debunks the claim.

Towards the end of the campaign, John McCain and prominent conservatives like Lou Dobbs claimed that Barack Obama's proposed tax plan would amount to welfare because it offered a tax credit to the 40 percent of Americans who pay no taxes. We've already looked into the claims that Obama's tax plan is a welfare handout (in short, it's primarily a matter of how you define "welfare," but Obama's plan doesn't look any more like welfare than McCain's). But what about that 40 percent with no tax liability? Can it really be true that more than a third of the country pays no taxes at all?

According to the Urban-Brookings Tax Policy Center, it is true that 38 percent of "tax units" -- which can be singles, couples, or families -- are projected to have zero or negative income tax liability in 2009. About 60 percent of these households make $20,000 per year or less.

However, being exempt from income tax does not mean you're exempt from federal taxes. Everyone who works is liable for payroll taxes, contributions to Medicare and Social Security that come out of every paycheck. There are also excise taxes on some goods and services, most notably the 18.4 cents per gallon tax on gasoline. The Congressional Budget Office found that earners in the lowest quintile, where most of those with no income tax liability fall, shouldered 4.3 percent of the payroll tax burden in 2005 and 11.1 percent of the excise taxes. Their effective tax rate (which is calculated by dividing taxes paid by total income) in those categories, according to the CBO, was in fact significantly higher than the rate of the top quintile, although that top one-fifth of the population had a much higher effective tax rate for individual and corporate income taxes.

The Socialist and The Oligarch

Joe Klein:

To state the obvious, once again: We have had a redistribution of wealth, upward, during the Reagan era. Taxes on work, a.k.a. payroll taxes, have increased. Taxes on wealth, the upper margins of the income tax plus capital gains plus estate taxes, have decreased. To call Obama a socialist because he wants to redress this imbalance is as accurate as calling McCain an oligarch because he doesn't.

Tax Calculator

This ad, from the Obama camp, is simply brilliant. It offers a concrete example and points out non-partisan (and conservative) sources that support the message of the ad.



Update: According to Washington Post, voters prefer Obama on taxes.

Flashback: McCain, The Socialist (Video)

Yesterday, I had posted about McCain's rightward shift on taxes. Here's the original post and thanks to Think Progress, a video clip of the exchange at an October 2000 town hall on MSNBC’s Hardball College Tour Show.

Sweat Equity

McCain's latest ad offering hits Obama on the "spread the wealth" comments.

H/T: RCP

Flashback: McCain, The Socialist

First Read:

But archived MSNBC videotape from 2000 further demonstrates how McCain’s tone has shifted on taxes and what constitutes socialism since the end of his last presidential race. Answering questions during a Hardball College Tour show in October 2000, McCain defended the progressive tax system when questioned by a town hall participant who warned that the high tax bracket of her father – a doctor – smacked of an inching towards “socialism and stuff.” McCain said that progressive tax systems are based on the fact that “we feel, obviously, that wealthy people can afford more.” He spelled out this response: “Here's what I really believe, that when you are -- reach a certain level of comfort, there's nothing wrong with paying somewhat more.”

Small Businesses 101

Should small business owners fear for their wallets if Obama is elected? Not the vast majority, business and tax experts say...

Read on to find easy to understand answers to your questions about proposed taxes/tax cuts for small businesses.

McCainomics II

Think Progress notes that the new tax cuts on capital gains and dividends proposed by McCain would mostly benefit the wealthy.

In fact, as the Wonk Room noted when McCain first toyed with including this provision in his economic plan, under the current 15 percent rate, 93.9 percent of the benefits go to the top 5 percent of taxpayers, and 84.8 percent to the top 1 percent. The other 80 percent of taxpayers see only 1.7 percent of the benefits of today’s rate.

The McCain campaign claims that the cut will “strengthen incentives to save, invest, and restore the liquidity of markets.” But given the current economic situation - one in which “people do not have an awful lot of capital gains” - this measure will do nothing to stimulate the economy.

Furthermore, The Street noted that McCain’s cut “might have unintended consequences,” like encouraging investors “to make one-time sales to capture lower capital gains and increased tax write-offs,” which “would facilitate capital flight.”

The Obama-Biden Tax Calculator

A nifty tool from the Obama campaign, this calculator allows you to determine how the Obama tax plan will affect your taxes.

Marc Ambinder points out criticism (of the tax plan and the calculator) from the conservative Americans for Tax Reform.

Comparing Tax Plans

CNN compares the tax plans of both presidential candidates and breaks down the numbers in a way that makes it really easy for the viewer to understand.

Taxes

Here's a nifty graphic from Washington Post that shows how your taxes would be affected under the plans proposed by McCain and by Obama. The chart makes it abundantly clear that the Obama's plan will result in greater tax cuts for a vast majority of Americans. Note the faint label near the bottom of the graph indicating that the bottom three groups make up 60% of the tax payers. (Click on the image to enlarge.)


Viveka Weiley renders the same data in a different way to take into account the number of tax payers that fall under each income bracket. Her graph makes it even more clear how much more the McCain tax cuts are intended to benefit the wealthy.


Thanks for the tip, Dan.

Expensive Plans

John McCain's new ad titled "Expensive Plans" reinforces previous attacks about Obama being a tax-and-spend liberal. The new tactic in this ad is to try and link Obama to Congressional Democrats. The McCain camp is hoping that the historically low approval rates for the Congress will hurt Obama. I think the case falls flat on a couple of fronts -- John McCain has been in the Senate way longer than Obama so he isn't exactly immune to the low approval ratings. Secondly, the voters do not seem to blame the Democrats for the gridlock in the D.C. In generic ballots Democrats outperform the Republicans by large margins. The ad itself isn't as good as some of the previous ones. What's with featuring Senate Democrats like Dodd, Reid, Leahy, and Schumer in the ad? Do most people even recognize these guys?