Posted by Damozel | Austan Goolsbee and Jason Furman ---economic advisers to Obama and two free trade lovers in Dems' clothing---have explained in The Wall Street Journal why Obama's tax plan is the best option for the middle class. Surprisingly, some conservatives have given it good reviews. That might be a good campaign strategy, I do see. I have some doubts, but I will keep them to myself for now, since it sounds way better than McCain's.
I've quoted key bits below, along with my reaction. Feel free to ignore it. The more expert commentary follows.
Sen. Obama believes a focus on the middle class is appropriate in the wake of the first economic expansion on record where the typical family's income fell by almost $1,000. The Obama plan would cut taxes for 95% of workers and their families with a tax cut of $500 for workers or $1,000 for working couples. In addition, Sen. Obama is proposing tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.
The Obama plan would dramatically simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class filers to do their own taxes in less than five minutes and not have to hire an accountant. (WSJ)
That last bit might garner him my mom's vote---I'll have to pass it on. (She still doesn't like him for the way his campaign treated Hillary, even though she says she won't vote for McCain either).
In addition, he will apparently cut the cuts for people who don't freakin need them. For having the guts, he gets mine.
That is why he would repeal a portion of the tax cuts passed in the last eight years for families making over $250,000. But to be clear: He would leave their tax rates at or below where they were in the 1990s. (WSJ)
So you see, there is a bright side. And there's more goodies for the haves.
- The top two income-tax brackets would return to their 1990s levels of 36% and 39.6% (including the exemption and deduction phase-outs). All other brackets would remain as they are today.
- The top capital-gains rate for families making more than $250,000 would return to 20% -- the lowest rate that existed in the 1990s and the rate President Bush proposed in his 2001 tax cut. A 20% rate is almost a third lower than the rate President Reagan set in 1986.
- The tax rate on dividends would also be 20% for families making more than $250,000, rather than returning to the ordinary income rate. This rate would be 39% lower than the rate President Bush proposed in his 2001 tax cut and would be lower than all but five of the last 92 years we have been taxing dividends.(WSJ)
But the next gets a big old BZZZZZZZZT! from me.
- The estate tax would be effectively repealed for 99.7% of estates, and retained at a 45% rate for estates valued at over $7 million per couple. This would cut the number of estates covered by the tax by 84% relative to 2000.(WSJ)
They argue that McCain's plan would not lower middle-class taxes and that it is "Bush economics on steroids.".(WSJ) They say that he allows only one middle-class tax cut, "a slow phase-in of a bigger dependent exemption -- would provide no benefit whatsoever to 101 million families who do not have children or other dependents, or who have a low income." BZZZZZZT! As someone with no children, I am already pissed off.(WSJ)
And I don't like the sound of this:
Sen. McCain's plan does include one new proposal that would result in higher taxes on the middle class. As even Sen. McCain's advisers have acknowledged, his health-care plan would impose a $3.6 trillion tax increase over 10 years on workers. Sen. McCain's plan will count the health care you get from your employer as if it were taxable cash income. Even after accounting for Sen. McCain's proposed health-care tax credits, this plan would eventually leave tens of millions of middle-class families paying higher taxes. In addition, as the Congressional Budget Office has shown, this kind of plan would push people into higher tax brackets and increase the taxes people pay as their compensation rises, raising marginal tax rates by even more than if we let the entire Bush tax-cut plan expire tomorrow. .(WSJ)
BZZZZZZZT!
Finally:
It has $3.4 trillion more in tax cuts than President Bush is proposing, largely directed at corporations and the most affluent. Sen. McCain would implement these cuts without proposing any meaningful steps to simplify taxes or eliminate distortions and loopholes. In addition, Sen. McCain has floated over $1 trillion in new spending increases but barely any specific spending cuts..(WSJ)
BZZZZZZT!
But of course, that's just what they say. Let's see how people who know more than I do (or not) have responded.
This is just a quick overview---I don't know economics and will leave this to Deb Cupples, who is on on Saturday, to deconstruct.
In a piece called Obama Blinks on Taxes, James Pethokoukis finds this move both politically smart (with polls so close, it will create class warfare since it calls McCain out on not raising taxes on the wealthy) and politically dumb (because people will say it's a flip-flop, as if we hadn't already seen so many of those on both sides that the phrase is growing meaningless). He doesn't seem to like the plan---he points out that Obama has big ideas about spending, and where's the money coming for for that, huh? He also has a suggestion for McCain.
McCain might want to consider tax relief that directly targets families, such as a massive increase in the child tax credit. I have raised this issue in chats with McCain advisers, but they haven't seemed too interested in going beyond what McCain's already proposed, doubling the dependent exemption. (US news)
That's a coincidence; I have a suggestion for him as well. But mine are different.
And anyway, what about aging boomers with little money and no children? What about us, huh?
Jay Newton-Small of Swampland was in on the media conference call, where the Obam-econs provided more detail about their plans.
[T]hey expect to save $90 billion ending the war in Iraq by the end of Obama’s fourth year in office, a “very conservative estimate,” Furman noted, less than half of what the CBO assumes the U.S. will spend that year on continuing operations in Iraq, Afghanistan and the War on Terror.... Obama offsets much of his spending on ending the war.
....Ryan Donmoyer noted this morning that the Obama campaign had never said if an increase in Social Security payrolls taxes (Obama proposes a 4% increase evenly split between employer and employee after a donut hole between $90,000 and $250,000) would also result in an increase in benefits..... Furman said they have made no decisions on benefits yet and would work with Congress on this issue.
Third, the Obama folks have said they would continue Bush’s annual AMT fixes rather than attempting a larger solution to the problem....(Swampland)
He notes that this "seems odd" since there's bipartisan consensus on the issue. (Swampland) "Even McCain wants to fix it." ("Even McCain" is good).
As he says, GOPpers have identified one provision they say is "detrimental to marriage"----marriages between wealthy people, that is. They wrote a letter to The Sun, which published an editorial accusing them of "war on women" (the hell?), intended to refute "this outrageous distortion." (see bottom of page at Swampland) Newton-Small muses, "Why [they] didn’t just argue that there are few that care about rich yuppies taking a tax hit, I don’t know."(Swampland)
Ce'est vrai. We non-rich non-yuppies are all about the "Taxenfreude."
At The Plank, Josh Patashnik addresses one criticism of the plan:
Conservatives have seized on Obama's payroll tax rhetoric to claim that he does support uncapping the full payroll tax rate, which would result in "European levels" of taxation with respect to.... top marginal rates.... Here's the most recent chart I can find after some quick Googling of top marginal rates by country [Update II: Found newer chart, from 2005]. It...looks to me like under Obama's tax proposal, the top marginal rate in the U.S. would be well below the top marginal rate in most Western European countries.
Sullivan thinks this ad can't hurt, but that one point needs more emphasis.
He needs to emphasize more that his tax hikes will only hurt those at the upper end of the income scale and that his tax cuts are for the middle class. This is a Clintonian pitch (Bill, that is). (DailyDish)
Make of this last what you will. The Obama Econs do talk about Clinton in their article. But we all know what Sullivan thinks of anything Clinton-related.
Rich Lowry at NRO's seems impressed by Obama's ad (The Corner) and also with the strategy underlying it.
Obama is steadily focusing his tax increases more and more on "the rich." That sets up a debate that the Obama campaign can frame as between raising taxes on the rich and cutting them on the middle class on the one hand, and basically just cutting them on the rich on the other. This is a box the McCain people should want to do everything they can to stay out of. (NRO)
He likes James Pethokoukis's suggestion for McCain. Meantime he has what I'd whisper is probably a pretty serious criticism of the McCain plan if I wanted McCain to win.
[A] big part of their message is that Obama is being inconsistent and that McCain, by contrast, will eliminate the deficit. I wonder what hard-pressed families care about less: the consistency of a presidential candidate's tax plans over time (especially when they are being changed to have less bite rather than more) or eliminating the deficit? (NRO)
Although I don't necessarily agree with the second alternative; that is to say, I don't think his framing nails the thing hard-pressed families are worried about....I don't think "hard-pressed families" care about eliminating any deficit but their own during the times when they are hard pressed. They want to feel, even if it isn't true, that those in power care whether or not they can get by.
From TIME's The Page: Former Treasury Secretary Summers says Obama is more fiscally responsible than McCain and will prompt stronger economic growth. All righty then. Summers has some impressive economic credentials, but I wonder if praise from Bill Clinton's Treasury Secretary (during the last year and a half of his administration) will cut any ice with conservatives. I agree it should.
Matt Yglesias thinks the plan goes a bit too far. (I put in paragraphs---he doesn't do that enough.)
[T]he lesson of the 1990s is that a tax burden in the neighborhood of 20-21 percent of GDP is perfectly consistent with very robust economic growth. At the same time, we have growing public sector needs in terms of health care, education, and transportation infrastructure.
Under the circumstances, it would probably be expedient for the federal spending share of the economy to go higher than the level of tax revenue that was coming in during the Clinton administration. Obama is proposing to leave tax revenues considerably lower than where they were ten years ago. The political rationale for what he’s doing is clear enough, and I think it makes sense for Democrats to avoid leading with their chins on taxes, but at the same time making the case for, at a minimum, a return to Clinton-era revenue levels shouldn’t be very difficult.
I'm sure my econ-savvy co-blogger will have something sensible to say on both plans in due course....
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Only ca. 2% of estates (i.e., roughly 20,000 annually) are currently affected by the estate tax, so changing it to affect 0.3% of estates is a modest change.
Jacking up the exemption to $7M from its present $2M would sacrifice very little revenue. The total revenue from estates is only about $30 B annually at present. One Bill Gates-style estate would do that.
As for dependent exemptions, they are wildly popular. That's why the so-called repeal of the marriage tax passed 323-95. Reinstating it is a political loser of an issue.
Posted by: Charles | August 15, 2008 at 05:07 PM