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YOUR WORLD IN CHARTS: "TAX PLANS FOR ALL" EDITION.
One thing I've tried to point out occasionally is that Obama's economic plans call for him to spend a tremendous amount of money giving people tax cuts. His Making Work Pay rebate will cost $700 billion over 10 years -- which is, again, an incredibly large sum of money that can't be spent on other things. Now, maybe a broad-based $500 rebate is a good idea, but it's certainly not clear to me that it's a top priority.
Anyway, Paul Krugman lays this out better than I've been able to, and also links to The Tax Policy Center's analysis of Obama and McCain's tax plans. It's a great backgrounder for folks interested in this stuff, and concludes:
Although both candidates have at times stressed fiscal responsibility, their specific non-health tax proposals would reduce tax revenues by $3.7 trillion (McCain) and $2.7 trillion (Obama) over the next 10 years, or approximately 10 and 7 percent of the revenues scheduled for collection under current law, respectively. Furthermore, as in the case of President Bush's tax cuts, the true cost of McCain's policies may be masked by phase-ins and sunsets (scheduled expiration dates) that reduce the estimated revenue costs. If his policies were fully phased in and permanent, the ten-year cost would rise to $4.1 trillion, or about 11 percent of total revenues. Both candidates argue that their proposals should be scored against a "current policy" baseline instead of current law. Such a baseline assumes that the 2001 and 2003 tax cuts would be extended and the AMT patch made permanent. Against current policy, Senator Obama's proposals would raise $700 billion, an increase of 2 percent, and Senator McCain's proposals lose $600 billion, a decrease of roughly 2 percent.
Scoring against "current policy," rather than a normal baseline that phases out the President's tax cuts and restores or replaces the AMT, is bullshit, and both campaigns know it. Ignore it. An honest accounting of McCain's plans suggest he'll rip $4 trillion from the treasure, An honest look at Obama's show a nearly $3 trillion shortfall. That's worrying. But they'll apportion that money very differently:
What you're seeing are the changes in after-tax incomes if the Obama/McCain tax plans are enacted. Under Obama's plan, which lets many of the Bush cuts sunset and adds a host of progressive tweaks and changes, the incomes of the bottom 80 percent go up, and quickly. The top one percent, and the top .1 percent, don't do nearly so well. It's almost as if he thinks racing inequality and stagnating median incomes are a bad thing.
Under McCain's plan, conversely, the rich do great, clinking their crystal champagne flutes as they float ever further from the peasantry. Given the current economic circumstances and the sheer level of inequality in our society, there's actually something quite gross about a plan that apportions its benefits as regressively as McCain's proposal. But, at the least, the differences between the two are clear. If you totally heart inequality, John McCain is the candidate for you. If you don't think the office of the American President exists to give giant bags of money to the wealthiest citizens, you may want to look elsewhere.
COMMENTS (8)
The problem with Obama's plan is that it doesn't take in to account variable costs of living in different areas; the same problem we see with nationally-based social welfare regulations, like the poverty limit. My wife and I are, combined, in the top 5% nationally, but in the Bay Area we're simply comfortable, not "clinking champagne flutes." We can pay our mortgage and put a little bit of money away, but there's no way we could afford to raise children in the Bay Area. But our work -- we both work with children with autism -- pretty much requires us to remain here if we want to stay on the cutting edge and remain near our family. I recognize that the plural of anecdote is not data, but it seems to me that the national picture is far too broad a brush to really evaluate the scope of the effect taxes can have on different regions.
Posted by: James F. Elliott | June 17, 2008 11:55 AM
James,
Your making a straw man argument.
Obama's plan will basically not affect you. There is a MONUMENTAL difference between the incomes of those in the 9th percentile (you) and those in the 99th percentile (the richest 1%). That's what "racing inequality" means.
If you are in the top 1% as an *individual*, you earn $250k+ annually. As a couple, this translates to $500k.
The 95th percentile earns more like 150-200k per household.
I live on the West Coast and I am well aware that $500k for a couple is more than enough to pay a mortgage, put two kids through college, and still clink a few champagne flutes.
Posted by: Patrick Minton | June 17, 2008 2:15 PM
Patrick -- It's not clear what he means by top 5%, so it may be that he has a household income of $250-300K or so. (I believe the above chart is household, not individual income.) While $250-300K may strike average Americans as pretty rich, it probably won't allow an LA/SF/NYC resident to buy a 2000 square foot house in a good neighborhood in reasonable driving distance to work, raise a family, prepare for retirement, clink champagne, etc. You simply are not rich with that income. (Also, the phase-outs get you coming and going when you live in NYC / CA, bc state income taxes are so high.)
A co-worker of mine bought a $900K house in Culver City recently -- not a fancy area. A good portion of a ~$250-300K income is gone just in paying for that modest, by no means fancy place to live.
If we are going to shift the burden to "those who can "afford" to pay more," we have to be much more intelligent about determining who can and cannot afford to pay more. Just focussing on gross income leads to inequitable tax policy.
Posted by: John D. | June 17, 2008 6:02 PM
Really? $900k house...Really? I live in the suburbsoutside of DC, my husband and I work hard, have degrees and are just over 100k mark! To even think that it would be a possibility to purchase a 900k home is a pipe dream! Perhaps you should re-think what middle class is and get a lesson in waht the "average" person makes!
Posted by: DB | June 17, 2008 6:35 PM
If you buy a $900,000 house with no money down and a 8% mortgage, that would cost roughly $72,000 a year. If you make $250,000 a year, that is well under the 1/3 of you income guideline, and it leaves a fair bit over for taxes, gasoline, food, champagne and even a few bucks to send a kid or two to college. If you put 10% down, or found a better mortgage rate, you'd be doing even better.
People who make $250,000 and up a year are just more likely to whine than poorer people.
Posted by: Kaleberg | June 17, 2008 7:34 PM
Krugman's analysis also ignores the GDP growth factor. By accepting higher taxes on multi-billionaires, Democrats generate greater GDP growth and greater income growth. That means higher tax revenues while decreasing the GDP share of taxes.
It isn't a static system.
Posted by: Kaleberg | June 17, 2008 7:37 PM
I think more should be made about cost of living, but mostly at the lower end of the spectrum. Being poor in NYC or San Francisco can be daunting because your income is quite high when compared to those living in other areas, but you aren't eligible for a lot of tax breaks and other programs but still pay in at the higher marginal rates.
It is hard to have sympathy for the James's of the world who think owning a home in the SF area should be part of being middle class. I lived in NYC for almost a decade and I never considered home ownership, much less apartment ownership, some sort of right that I should have as a middle class American. There were a myriad of benefits for living in NYC that trump home ownership. Now that I no longer live there maybe I should get even more tax breaks because its hard to find good Korean food, or art films, or a major museum, or ample public transit.
Posted by: Ricky | June 18, 2008 9:43 AM
Lets eliminated all income taxs, then tax cuts would be flat across the board for everyone and this debate about liberal vs conservative becomes pointless. AMT and income tax rates become a thing of the past.
You will always pay income tax and probably more than you want too - but at least a fairtax solution doesn't interfere with my income.
Both sides in this argument are arguing for a draconian, outdated tax system designed by the politicians to provide loopholes for them to give preference to special interest groups for thier own policial gain.
Posted by: fairtax.org | June 25, 2008 1:14 PM