Obama's Tax "Cut" for non tax payers

Great Debates
1

Okay, I guess my flip-flopping has put me back in the undecided camp this election because of what I have heard about Obama’s tax cuts.

I put this in GD because it will go there soon, and while I do have questions about the details of his tax plan, I think it is garbage if what I have heard is true.

So, is it true that EVERYONE making under $250k gets a tax “cut” under Obama’s plan? Even those who already pay ZERO income taxes? In other words, if I owed ZERO income taxes last year, then under Obama’s plan I would actually get money back from the government?

When I think of a tax cut, I am thinking of (hypothetically) a tax rate being at 15%, but under a new plan it goes down to, say, 11%. That is a tax cut. If I pay nothing, then 11% of nothing is still nothing.

I always thought that implicit in the idea of a tax cut that you would have to pay the tax to begin with to get a benefit in the cut.

If that is true then Obama is being terribly dishonest by calling this a “tax cut” and should refer to it as “welfare”.

2

He’s not talking about anything new. The Earned Income Tax Credit has existed since 1975.

3

Forgive my quoting myself, but I just explained this in a concurrent Pit thread and might as well just repost it:

(Corrected “thirty” in original post to “forty” because I had originally mistyped 1979 for 1969, which is the year the EITC was introduced.)

:rolleyes: As I noted, this concept of a “refundable tax credit”—i.e., a net negative tax, where you actually get back from the government more than you paid in tax withholding from your wages—for low-income workers has been part of our tax code since 1969. If you’re just getting worried about this now, you really haven’t been paying attention.

AFAICT, it’s been a very effective program overall, primarily because it rewards wage earning at the bottom of the income ladder: hence the name “Earned Income Tax Credit”, and the name “Making Work Pay” for Obama’s proposed program. The EITC is not problem-free, of course, but it’s very useful in providing much-needed income support to low-income workers while not removing their incentive to earn wages instead of just collecting government handouts.

4

I understand the Earned Income Tax Credit. But I have never heard that referred to as a “tax cut” when it is increased. You have to admit that it is misleading.

5

Well, for one thing, I don’t see much difference between “tax credit” (which is right there in the name of it) and “tax cut”.

For another, the proposed EITC expansion will be only a “tax cut” in the strictest sense for many taxpayers. Not all of the recipients by any means are going to wind up with a net negative income tax.

And finally, I agree with you that nobody should try to pretend that the program wouldn’t be redistributive. Indeed, an increased number of workers under Obama’s plan would have a net negative income tax, meaning that they’d be getting money from the government instead of paying it to the government. (Of course, the EITC applies only to regular federal income tax, not Social Security or Medicare payroll taxes, which low-income workers also pay.)

But I don’t see where Obama is trying to hide that fact at all. It sez right there in his platform that “The “Making Work Pay” tax credit will completely eliminate income taxes for 10 million Americans.” (About 23 million families receive the EITC at present, and for many of those it’s a net-negative tax already. So I kind of doubt that the number of taxpayers who would suddenly start paying zero or negative tax under Obama’s plan is actually going to be that large.)

6

You know that the average voter doesn’t read the platform. Tax credit, fine. And it is understood that some people get more back than they pay in. Also, not well liked by working people, but still fine.

But, the thing is when you hear the phrase “95% of people will get a tax cut under my plan” you have to admit that he is trying to mislead. No?

If several people owe you money every year, and you say that you are going to “cut” payment rates, would any rational person think that by that statement you mean that you will now pay people who owe you no money at all?

But, to take your second example, if you are making payments to me, and will increase those payments, would you say that you are “cutting” my payments to you? You have to admit that such a construction is a torturous use of the English language and is meant to mislead…

7

This argument is such a stretch, your arms must be 20 feet long.

8

Kimstu, the headline (ie what Obama says in speeches) is always “a tax cut for 95 percent of Americans” while the details are only in websites. And sure the EITC has been around for a while but Obama will expand it and add new credits, all of which is paid for by 5 percent of taxpayers. You have to admit that Obama is not being fully upfront about this by usinf the tax cut language.

9

I agree.

Wouldn’t you think that, since he’s been touting that 95% figure for a long time, there would be much more coverage of what it really means. Especially since one could argue that it adversely affects that “third-rail” of politics … social security.

10

This is a crucial distinction between the economic policies of the Republicans and the Democrats.

The Republicans tend to cut or eliminate altogether taxes on the wealthier citizens and large business with the (stated) goal of a “trickle down” effect.
The Democrats tend to direct their “wealth redistribution” efforts towards the less wealthy, with the (stated) aim of a “ripple” effect. (note that BOTH parties work to “redistribute the wealth”, just to different recipients)

Which approach works best when it comes to stimulating the overall economy and generating more overall prosperity?

In an economy in which consumer spending makes up roughly 70% of activity, and in which a similar percentage of citizens fall into the lower to middle-class income levels, it makes sense to enact policies which put and/or keep more money into the hands of those most likely to spend it.

So-called “trickle down” econmics has, in fact, had exactly the opposite effect, with the wealth flowing UPwards and the income gap widening to record levels .

Often, the charge is made that those in lower income levels are undeserving of “welfare” taken from the hard work of those of more means, but as was noted, this is an example of rewarding work and simultaneously pumping money into the economy in the form of consumer spending.

And consider that wages for most working Americans have been stagnent for decades when adjusted for inflation, so tax relief is a way of partially compensating for the failure of the private sector to reward their work and productivity.

Most families I know, including mine, who receive the earned income tax credit and hense a larger refund than the taxes we paid in, spend it almost immediately on needed consumer goods. Most of us don’t put it in the bank, since at our income level, there is almost always some pressing need.

Also, it is deceptive to speak of “raising” taxes on the wealthier, since their rates have been cut significantly under Bush and the proposed “increases” simply bring their rates closer in line with previous levels.

11

Not well liked by which working people? Are you aware that between 15% and 20% of all taxpayers receive the EITC, and about 88% of the total sum paid out is a refund (net negative tax) rather than a partial offset of taxes? Where do you get the idea that working people don’t like the EITC?

Well, it honestly doesn’t sound disingenuous to me. It sounds as though he’s making a distinction between the 5% of people who will see their tax burden go up, and the 95% who will see their tax burden go down (not very much down for most of us, of course).

I have no problem thinking of a “decrease” in tax burden as also implying that a negative tax burden becomes more negative. (Of course, I’m a math professor at present, so thinking about “decrease” that way is part of my job. :slight_smile: )

12

Please explain how it is a stretch at all.

If you get a raise at work, do you tell your spouse that the amount you are required to pay your employer for your job has just been reduced?

13

Who is a “non tax payer”??? Every single person that works in America pays payroll taxes. People in most states pay a sales tax. Every person with a car pays taxes on gasoline. If the total amount of money you pay to the state in a given year is less than the year before, how is that not a tax cut?

14

Weakre talking about the U.S. federal income tax. Other taxes are not properly a part of this discussion. For example, if a state wants to refund sales tax paid by certain people, that would be a separate discussion.

15

“trickle down”, that sounds awfully close to “spread the wealth”!!

16

I’m saying that other taxes should be part of the discussion if we are trying to validate the Obama claim that he is “giving a tax cut to 95% of working families”. The OP is claiming that this is an inaccurate claim because a certain percentage of working families do not pay federal income taxes. If there is a time when Obama limited his claim to “US federal income taxes” then I would agree that “tax cut” is misleading, but I seem to recall him always leaving it simply as a “tax cut for working families”. If you want, leave state sales tax out of it - working families still have significant federal tax obligations through payroll taxes. The fact that it is credited back through the income tax mechanism doesn’t mean it isn’t a tax cut.

17

If the proposed tax policy were just to increase taxes on the wealthy in order to increase the EITC, I would agree that it might be misleading to call it a “tax cut.” But the much larger part of the program cuts taxes in the conventional sense. So even if it might be more specific to call it a “tax cut and increase in the EITC,” I can’t really complain about the shorthand “tax cut” being used–especially when the whole thing is explained in detail on the website.

Jas09 also makes a good point. Politicians frequently speak of tax increases and decreases in terms of the overall tax burden instead of any particular tax program.

18

How is this relevant? It’s a pet-peeve of mine. Why does it matter how much others make? It only matter what you make.
If, ceteris paribus, the top 5% made 500 million dollars and the bottom 5% made 200k, you could say that the income gap has increased, but the “poor” are richer.

19

Earned income credit is just a way to implement the negative income tax. A conceptually simple NIT is pictured as a flat tax with a government refund to everyone.

Of course “cutting the tax rate” in such a scenario could also be called “increasing the refund.” This is so obvious I don’t even understand the point of this thread. It’s like calling the tails side of a coin “not-heads”.

20

Like hell. Payroll taxes are very much a part of this discussion, a part of this discussion that folks making the argument that the OP does would very much like to forget.

Did you ever notice that when you get a paycheck, it doesn’t add up to the total amount of your hourly rate times the number of hours you work? That’s because there are taxes taken out of it! These are called payroll taxes. Unless you are getting paid under the table, you are paying taxes on the amount you earn. That’s even before you get around to paying a federal income tax.

95% of working Americans will get a tax cut under Obama’s plan (according to the Tax Policy Center, it’s actually 94.8%).

If I were you, jtgain, I’d be a little embarrased for being so easily tricked, and I’d be pissed for being lied to in such a way that I considered changing my vote. That’s just me, however.