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13 October 2008 @ 03:51 pm
Someone smart please tell me what this means http://online.wsj.com/article/SB122385651698727257.html

All I could understand was that if you make more money you pay more taxes, so making more money is bad.
Greggregstoll on October 13th, 2008 09:12 pm (UTC)
I did taxes for people for two years, and that is one confusing article.

I guess the point is that Obama's tax cut proposal is heavy on tax credits, which give you a flat amount of money back (unless they gradually phase out, which it sounds like the "make work pay" one does), as opposed to what the Wall Street Journal wants, which is to reduce the tax rate entirely. But the difference seems kinda academic - if you pay less taxes, who cares why?

The chart seems to be misleading - as best I can tell, under the Obama plan you pay less taxes at $25000 (notice the graph is of marginal tax rates, not amount of taxes paid) and so as your income goes up you pay more tax on every dollar you make. But you're still paying less than the current system. (and they picked a two-earner household with one kid in college and the other getting child care (i.e. two kids 12 years apart or so) to maximize the Obama plan's marginal tax rate)

Also, (again, as best I can figure this mess out) the fact that "the tax-credit welfare state would soon cost four times actual cash welfare" is the sort of thing only the Wall Street Journal cares about since Obama's plan uses the "tax-credit welfare state" to lower people's taxes.
Greggregstoll on October 13th, 2008 09:21 pm (UTC)
You can read more about his plan here if you have an abundance of time and interest.
djedidjedi on October 13th, 2008 10:46 pm (UTC)
In general, the author is against tax credits, tax refunds, welfare and taxes basically. Specifically, the author is focusing on one particular area which is the same misdirection that supply siders use, one measure called 'marginal tax rates'. The marginal tax rate is the amount of extra taxes you pay if you were to suddenly earn exactly one dollar extra. Typically, if your tax rate is 30%, on one extra dollar you'd pay 30 cents. Supply-siders believe that if you make the marginal tax rate too high, people will stop working (extra). Because, I'm sure the guy that can't afford health insurance already will stop working that second job because he only keeps 80 cents out of every dollar earned instead of 90 cents...yadda yadda yadda. The problem is that M.T.R. is only a worry of the rich who have plenty of money to burn and people who have the possibility of earning extra somehow but have no need for the money. Also, supply siders tend to think any number greater than about .05 is too great a tax rate.

To summarize, the problem they have with the Obama tax cut is that much of it is in refundable credits *that phase out with income* instead of topping out (i.e. you earn $1000 more not only do you pay taxes on that $1k you also get less tax credit in general and so pay a tiny bit more taxes on the previous amount too). I can see this actually having legs eventually with the republicans in Congress. It's called means testing and it's dangerous politically. I would prefer if all of these tax credits capped out at their max amounts instead of being phased out. Sure that means we're giving rich people some extra tax credits (which are mitigated by raising their rates anyways) but there really are only a few rich people and giving them an extra $5k each is nothing if it means the tax plan can be declared to treat all people more equitably regardless of income and so pass Congress.