New Op-ed at Fox News: Obama's Tax Follies

The new piece for Fox News starts like this:

Not all tax cuts are the same. The question isn’t just how much money taxpayers get to keep or are given, but the impact that taxes have on how hard people work. Tax plans that try to help the poor can sometimes become traps, making it difficult for the poor to climb out of poverty.

One approach is to lower the marginal tax rate, the percentage taken for each additional dollar they earn. The other increase tax deductions and credits, but phases them out as people’s income increases.

Take something such as the Earned Income Tax Credit, a program designed to help guarantee the poor a certain level of income. The desire to help the poor is understandable, but it also creates its own problems. Giving more money to people, the poorer they are, also means that the more income these poor individuals make, the more government assistance is taken away from them. Just as higher taxes discourage work, the loss of a significant portion of one’s deductions and credits will also discourage work.

Senator McCain’s proposals have top marginal income tax rates of 35 percent for individuals and 25 percent for corporations, while Senator Obama’s plan has rates of 39.6 and 35 percent respectively. But the official marginal tax rate isn’t the rate that people actually pay because they also lose tax breaks as their income rises. . . .

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Anonymous Anonymous said...

Spend less than you take in.

Yes, I can see how that is complex.

When exactly did conservatives become brain dead? It wasn't during the Reagan years when republicans were smart. It was sometime after that when the neo-cons came to power.

Man, give me the good old days of Reagan republicans! This new batch of conservatives makes a pond sludge look intelligent.

8/18/2008 1:50 PM  
Anonymous Anonymous said...

My wife and I make a little over 250k per year. Currently we employ a nanny to help out with our two children both unde the age of two. We also employ a gardner and house cleaner and are thining about upgrading to a larger house due to our growing family. If we are hit with increased tax rates we will probaly have to let some of our help go. I know they are hurting because they have lost jobs over the last year. Loosing our work will not help matters. These are people we have grown to care about. I am sure this would be a problem repeated over and over if tax rates were increased.

Additionally - we would not be able to upgrade into a new home. This would take money away from all the contractors etc... We were also thiking about hiring an employee for my wifes business. Won't be able to do this either. Another job lost. No new cars for us with a new tax increase. How will this impact the union workers?

Has Obama put any thought on how tax increases would actually hurt the very people he is trying to help?

8/18/2008 2:10 PM  
Anonymous Anonymous said...

Obviously Obama remains in elitist mode while attempting to "let the people eat cake". McCain isn't much better, posing as a Republication while clinging to a visibly moderate Democrat platform. It's become a matter of which Democrat to vote for. Meanwhile Congress spends our tax money on personal agendas, while insisting we pony up more. Who's working for whom? Cut taxes AND Congressional spending. Fire Pelosi and Get back to Reagan sensibility. Even Clinton enjoyed the fruits of Mr Reagan's labor, taking the credit for our surplus. Of course I don't really see much of a change on the horizon until 'We the People' get fed up enough to vote 'em all out of office and elect public servants once again.

8/18/2008 3:08 PM  
Anonymous Anonymous said...

The US government is currently almost broke, and going further under water every day. What do you suggest we do about that? Borrow more?

You are making a "little over $250k"? Then I suggest you have nothing to worry about. You can maintain your luxurious lifestyle and the small change in the tax rate for the few thousand you earn in excess of $250k will make very little difference to your total tax bill. On the other hand, you can be proud to once again be able to pay your way rather than rely on the middle class to pay your tax bill.

8/18/2008 3:29 PM  
Anonymous Anonymous said...

You failed to mention the most important of the options available and that is reduce spending. The amount of government waste is far beyond incomprehensible. Pork Barrell spending, giveaways, foreign support are all wasy to reduce government spending but not while the current breed of politician sits on CApital Hill.

8/18/2008 4:38 PM  
Anonymous Anonymous said...

This is economics? you're kidding me. Let the rich get richer and the poor don't see a dime? The cutting of government programs for the poor by lowering their taxes. This idea from a conservative ideologist who probably sees all community-based and "government spending" programs as a waste. No way man. Obama's policies will brig things back to balance every time a Republican holds office the economy goes into a slump and the top 2% or 3% get richer and richer. Only under democrats like Bill Clinton, have we see seen greater economic prosperity for everyone. This is the country of millions of Americans not thousands.

8/18/2008 6:42 PM  
Blogger Zeke said...

How do tax breaks for lower income individuals affect the "effective" tax rates for higher income individuals? It shifts the burden statistics-wise, but it doesn't change the "39.6%" figure of Obama's plan. In other words: it seems as if a person making $250k a year pays X, regardless of whether another person who makes less gets a tax break that the first is ineligible for.

Also, the first claim that increasing effective income (thereby leading to decreased benefits) would have the end result of discouraging work... Seems to be a manipulation of an already dubious claim. We have no knowledge of actual disposible income, talking in such generalities, and heck, maybe they'd be encouraged to work because of the illusion of higher income levels. Right?

I'd love a response since I'm genuinely interested here.

8/18/2008 7:32 PM  
Anonymous Anonymous said...

Why is there so little discussion about pushing for a national sales tax? This is perhaps the fairest tax of any proposed and would serve to abolish the IRS and serve to make the rich pay more in the long run.

8/18/2008 8:24 PM  
Anonymous jrd said...

Sure. The middle class is paying the tax bill for the so-called rich. How ridiculous. You can look at hundreds of studies that all say the same thing -- the rich pay the majority of taxes and I don't think that they are calling 911 to settle family disputes or using the emergency room when they get the flu. Someone is not pulling their weight in this country but it sure isn't the rich.

8/18/2008 10:28 PM  
Anonymous Burr Deming said...

Thanks for the analysis.

I do wish you would expand the discussion of McCain's plan to tax the health benefits of working folks.

8/18/2008 10:46 PM  
Blogger Paul said...

I think this is "Foxy"nomics. It is not Reaganomics, Keynesian, or anything that, as a practical matter, is accurate and correct. It is just an excuse for making a case to keep the weight on the middle class and to keep the poor just that - poor. Maybe even put them out in the street. I get a laugh out of the couple making around $250K who have to lay off all their staff it their taxes go up. Really? and then the post about Obama as an elitist. Really? Well, I think I will have a cup of tea.

8/19/2008 12:02 AM  
Anonymous gavagai said...

"Does anyone really believe that those in the top 50 percent got even seven times the benefits from government that those in the bottom 50 percent received?"

Nice little spin move there, but I call bullsh*t.

Everyone knows that the goal of progressive taxation isn't about the taxpayer getting "government" benefits in equal proportion to their tax rate - that's a red herring.

The honest way to assess this is the "social" benefits from being middle to upper-class. You get health care, cars that run well, good schools, nice neighborhoods with low crime/pollution rates, good public services (police, fire, roads, etc.).

I'll leave it to economist hacks like Lott to quibble about whether all those social perks calculate up to "seven times" as much.

Anyone with any sense of humanity can see where this economic train is going. How Lott can actually look at the dismal economic trends for the bottom 50% and conclude that it makes the most sense to come to the defense of the super-rich is, well, ... disgusting.

8/19/2008 3:28 AM  
Anonymous Anonymous said...

I also make more than 250k a year. I make this much because I work hard, long hours, sacrificing time away from my family. I choose to spend time working rather than watching tv or other activities which I could be doing. I also support alot of people. Cleaners, family, friends. If this stupid ass candidate takes office, alot of hard working people will stop. Its not worth it. Why should I bust my ass so some lazy ass poor homey can get assistance finding a job. No one helped me. No one. I did what it took. No college, still made it. Hard work. Smarts. America. I refuse to pay more than the already over taxed rates so some lazy ass can continue to sit, refusing to learn proper english, watching Jerry Springer, on Jerry Springer, with his pants hanging down around his ass.

Wake up. You want to stop being poor. This is America, WORK FOR IT.

8/19/2008 3:50 AM  
Blogger SemperV said...

"You are making a "little over $250k"? Then I suggest you have nothing to worry about. You can maintain your luxurious lifestyle and the small change in the tax rate for the few thousand you earn in excess of $250k will make very little difference to your total tax bill. On the other hand, you can be proud to once again be able to pay your way rather than rely on the middle class to pay your tax bill."

Reading this, I would assume you make less than 250k per year.

Anyways, I think it's idiotic to hate on the rich. They pay the lion's share of the taxes. Indeed, this family that earns a bit more than 250k has probably paid more taxes than your middle class family ever has (assuming you're middle class).

The rich not paying their fair share? They EARNED that money. Tell me why at all they should pay more than you? So the poor people can enjoy the fruits of THEIR labor? As it stands, be happy that at least they have to pay a bit more.

8/19/2008 4:12 AM  
Blogger John Lott said...

Dear Zeke:

"How do tax breaks for lower income individuals affect the "effective" tax rates for higher income individuals?"

Well, the question is when do the benefits phase-out. Take a simple example. Suppose you were given a tax credit of $1,000, but that the credit is phased out by $100 per $1000 between incomes of $100,000 and $110,000. If your tax rate would have normally been 39.6 percent at $105,000, this phase-out provision really raises your effective tax rate to 49.6 percent. You lose 10 percent of the last $1,000 you earned from the phase-out. Plus you still have to pay the 39.6 percent rate on that last $1,000.

As to your second question, this is simple economics. Lower the return that you get from working, and there will be less work. Everything else equal, if you got to keep all the money that you earned would your work as hard as the case where you could only keep 50 cents of each additional dollar you made? The same goes for investments. You can go buy a boat or invest in a company. If you made 10 percent on the investment, possibly you would forgo getting the boat. If you made 2 percent or 5 percent net of taxes, you might decide that the return is too small and you will go and buy the boat.

Dear Paul:

If you could be specific about the claimed inaccuracies, I could respond.

Dear gavagai:

I don't think my point is a red herring. If someone makes seven times the income of someone else, why not just have they pay 7 times more? Fine, you want a progressive tax structure, but why not make those who make 7 times the amount pay 15 times higher taxes, 20 times? It is hard to say that since those making 7 times more are paying over 32 times more in taxes that they are somehow getting off easy.

Just asserting that higher income people should pay not just more taxes but a higher share of their income is just that an assertion. Just because some people claim that it should be the purpose of the tax system doesn't mean that it makes sense. Your claim that it is the "honest" way to deal with that is just an assertion. I don't see at all why you can claim that it is the "honest" way to deal with the question. By the way, it is not just the middle class and the wealthy who "get health care, cars that run well, good schools, nice neighborhoods with low crime/pollution rates, good public services (police, fire, roads, etc.)." The poor get probably more spent for them on police, they also get health care and other subsidies that the higher income people don't get. If higher income people send their kids to private school, that is another large subsidy that the poor get that the wealthy then don't. Most programs such as social security are net transfers to the poor. You should look at my recent Fox News piece on transfers to the poor who get a subsidy of over a trillion dollars per year.

8/19/2008 5:35 AM  
Anonymous Chris said...

"Why is there so little discussion about pushing for a national sales tax? This is perhaps the fairest tax of any proposed and would serve to abolish the IRS and serve to make the rich pay more in the long run."

I would love to see Mr.Lott's response to this question. Why is it that we don't just do away with Federal and State taxes all together and instead implement an across the board sales tax? This method would completely eliminate tax fraud, remove the need for IRS, cut out totally annoying and overcomplicated yearly tax forms, and would eliminate inequality in tax rates for both rich and poor.

Everyone would take home a larger paycheck, and, therefore, would spend more, pay more taxes, and would boost the economy. Seems simple enough. Why is it that this is such an overlooked plan of attack?

8/19/2008 8:43 AM  
Anonymous Anonymous said...

Definitely a change to the tax code is what is warranted. I mean, it is HORRENDOUS. It is horrific. There is nothing good about it. And then you have candidates who just squabble. Like arranging the deck chairs on the titanic.

National sales tax isn't so good, as it only taxes the poor more than those with money.

The Fairtax (www.fairtax.org) untaxes everyone on 'necessities' with a prebate, with taking away 100% of ALL TAXES.

We need to repeal the amendment that allows the government to steal our money in this way. I say steal, because they spend like drunken sailors.

8/19/2008 5:25 PM  
Anonymous Anonymous said...

Both D's and R's in Government have for years spent more than we paid in taxes. This started in the 60's and hasn't stopped. The US is now in debt trouble worse than the credit crunch and the real estate bubble combined with foreign oil purchases combined. It is only a matter of time before China and the Middle East oil nations refuse to take any more of our debt. And then the magnitude of our problem will be effecting rich and poor alike.

The government collects plenty of taxes but spend foolishly with ear marks and increasingly expensive entitlements not to mention "pet" programs. When the chickens come home to roost you can bet we won't be having chicken soup.

8/20/2008 8:05 AM  
Blogger Michael said...

Ron Paul says it best. I believe his Libertarian type views would slash spending massively. They would cause great initial pain as the welfare state and overaggressive military wind down (I love our troops and believe in a strong military, but not one that causes us to pay others to protect them ... defend the borders and do as little else as possible). I know of poor folks who had to quit their jobs or lose free medical care. That's what the issue with progressive taxation discouraging work. I bust my hump majorly and help lots of folks. But the more Karl Marx Obama takes, the less incentive ... and the less people I can help.

8/20/2008 4:28 PM  
Blogger ProfessorBob said...

Face it we now have a Democrat party and a Socialist party. Neither will every improve the US economy. The world is using Capitalism to beat us over the head. Only because of our history of grand natural resources have we been able to at the forefront of world power.
Until the people decide that they want opportunity over security will this Nation survive. We are bankrupt and in denial.
The free market should prevail. The tax code can and should be thrown in the shredder, and the "FairTax" should be enacted.
K street would no longer control the government.
Clear simple and returns control to the people who earn the money.

www.fairtax.org check it out.
Only those who are paid by tax funds would have any problem with it.
Those of us who create the capitol love the idea of being able to pay a full days pay for a full days work.
I would hire one if not two additional employees immediately after the FairTax is signed into law.
I do not have time to fill out or keep the form so the IRS can just in case check up on my compliance.
We get the government we deserve.

8/20/2008 7:47 PM  
Blogger theconservativeliberal said...

I teach at-risk high school students in California and I will tell you that the majority of them come from families with a large amount of children, no parent attention, and no parents working....but they live in government housing, receive free health care, free food, and our government sends them a check every month for being "poor". Yet, they all have cell phones. Also, they don't want to learn English, because they are not required to and if I force them I am a bigot! And why would someone want to work and be successful when life is pretty good living off of the government. Wake up people, the people you are "helping" don't appreciate it and have a sense of entitlement for all they get. As a teacher, how am I suppose to compete with the government tit? Give a man a fish....you know the rest.

8/21/2008 12:17 AM  
Blogger Jeffrey said...

One thing I will say for this article, it's true that Obama's underlying tax philosophy doesn't work. Now, I will note that he's only talking about repealing a certain amount of tax cuts that should have been temporary anyway, and not actually raising taxes (at the moment, though one can hardly call the Democrats innocent in the tax-raising department.) But the idea of taxing the rich to feed the poor, as it were, is a highly flawed one.

However, one cannot support McCain just because Obama's tax plan is flawed. McCain's tax plan should be a good one. The problem is, it is not. Even disregarding the fundamental shift in Republican values that occurred over the Bush years, resulting in Republican tax plans as byzantine and flawed as the Democratic ones, McCain's plan is little more than maintaining a status quo that is based on a flawed system and fails to work. Reducing taxes on businesses operating in America is a wonderful and laudable goal, but his methods for doing so are wishful thinking.

I don't find Obama elitist, or pandering to the welfare state, any more than I find McCain to be a slave of corrupt businesses and the "fat cats". What I do find is that they have both embraced very different, but ultimately flawed, economic models. And if evening political talk-shows have taught me anything, it is that presenting two opposed views in no way guarantees you will get anywhere near the truth.

And so, by virtue of both front-runner candidates having terrible tax plans, one has two choices. One can either choose to vote their conscience for a third party candidate (which is always a good decision, as a large amount of votes for a third party normally guarantees those principles being accepted into the main parties in the next election,) or, if one feels that the vote between the two major candidates will be far too close and too important to leave alone, one must make a decision on issues other than taxation.

In previous elections I have chosen the former, but this time I must side with the latter for reasons that have nothing to do with the tax plan. I console myself by saying that, ultimately, taxes are congress's purview, and luckily in congress it is a lot easier to elect the sort of independent thinkers we need to reform the American tax code.

8/21/2008 7:12 AM  
Anonymous Anonymous said...

Wow. People are stupid. Those of you Obama supporters apparently never had a class in economics.

My husband and I make a little over 250K. My husband works HARD. He has enormous amounts of responsibilty (that many of you wouldn't take). He works about 80 hours a week (and doesn't get overtime pay). In addition to working long days, he often has to take calls IN THE MIDDLE OF THE NIGHT THAT CAN TAKE 3-4 HOURS. He never complains. Last year we had to pay the alternative minimum tax. Talk about crazy. He works hard, the government calls us 'rich' and wants to take even more. So they can give it to people who don't want to work hard, if at all.

I started my own business a few years back. About the time I was planning to hire a couple people, I figured my taxes. HOLY COW! With the regular tax, alternative minimum tax, self employment tax, etc. etc., I was able to keep about 40% of what I earned. My husband said - forget it!! Not worth it. So... I am now not paying taxes, and neither are the employees I would have hired.

If Obama wins and implements his tax plan, my husband will probably look for a LOWER paying job, with far less responsilibity. If we don't get to keep the money anyway, why make it? Now there is nobody to do the hard work my husband does. By the way, he hires lots of people. These people will now not have jobs.

Doesn't it make so much sense to ruthlessly tax the 'rich'?? 'Rich' = hardworking, inventive, creative, non complainers.

Liberals will kill all incentive for hard work in this country. When nobody is willing to work hard because of the tax burden, what will people do?? Something to think about.

This is America. ANYONE who wants to be successful can. In my humble opinion, those that make the most (i.e. contribute the most!) should pay the least in taxes. There should be LITTLE TO NO government aid to those who won't educate themselves and work hard. They have made their bed, and they should lie in it. I'm all for a TEMPORARY hand up, but no hand outs.

Sorry folks. Class envy will not work. Let's reward accomplishment, not laziness and sloth.

8/21/2008 9:35 AM  
Anonymous Anonymous said...

I'm a self-employed sole proprietor. I have worked and continue to work hard for every dime I make and I follow a budget carefully. But, the more I work, the more I get taxed. What kind of sense does that make?! Where's my incentive to produce?! May as well go work at a local burger joint and take Welfare. Or, better yet, just sit on my duff and do nothing, collecting disability pay because I've got a bad back (which I do, by the way). The FairTax would solve virtually all of our nation's economic woes, including UNTAXing the poor. Why won't the folks in DC push it more? Because it would take away their political power aka tax breaks and loopholes. Study the bill, folks, and become active supporters. It's only 133 pages long (http://www.fairtax.org/PDF/HR25_2007.pdf), whereas the tax code is 13,458 pages long (www.gpo.gov) and grows bigger and bigger every year.

8/21/2008 10:59 AM  
Anonymous Anonymous said...

I worry about biden's plagiarism. But if university professors can do it with virtual impunity, why not politicians. I guess it's a sign we've truly reconciled ourselves with living in the age of mechanical reproduction. See, e.g.,


8/24/2008 1:47 AM  
Blogger yomarymo said...

Let's focus on Earned Income Credit for a moment. The concept of someone getting more money from the IRS than they actually paid in taxes is ridiculous. We can't even separate welfare from earned income any more. Recalling John Kennedy's statement: Quit asking/voting based on what America can do for you, rather ask/vote considering what you can do for America. Many seem to have forgotten that America = Americans = Citizens. We, as individual Americans, need to collectively take responsibility back into our own hands--OF the PEOPLE, BY the PEOPLE, FOR the PEOPLE. We need to get back to the basics of our democracy.

9/24/2008 9:05 PM  
Anonymous Anonymous said...

That is a biased story. Not news, but closer to propaganda.

Bush has enlarged the gov't and the debt to levels that need to be paid for. There's only one way to do that. Increase taxes.

McCain will simply increase debt, which will have the effect of devaluing everyone else's dollars.

The article states "Does anyone really believe that those in the top 50 percent got even seven times the benefits from government that those in the bottom 50 percent received?"

This is a fundamentally stupid question. The answer is that those people receive much more than 7 times the benefit. Simply put, the answer is yes.

For purposes of proving my point, we need to quantify that statement. There is only one way to quantify this and that is by using dollars as the measurement.

But first, by nature of the United States Federal Gov't being in place, protecting this country from being overrun by despots, be they Hitler, or whoever, Americans have the opportunity to become filthy stinking rich. Without the gov't, that income and all of the wealth that Americans have been able to accumulate as a consequence of being in America and not in sub Saharan Africa or wherever, they would be much worse off - more than 7 times worse off.

I don't think that anyone with an open mind can argue that claim.

I don't think that anyone would disagree that without the gov't that we have, we wouldn't be able to live the lifestyles that we are accustomed to.

Back to the quantification. For illustration purposes, if the top wage earners make an average of $1 million and the lowest wage earners make an average of $10,000, then, by nature of them being in this great, free land, they received 100 times the benefit.

9/30/2008 11:18 AM  
Anonymous Anonymous said...

Several years ago I had the (dis)pleasure of visiting the homes of about 30 families within Indianapolis that receive housing assistance. Having been raised as a democrat I always believed that it was money well spent. I am now FURIOUS that any of my hard-earned money goes to these scam artists. These people had big screen TV's, Playstations, pounds of gold around their necks, expensive high-top sneakers and their too numerous to count offspring ran around in Air Jordan sweat suits, etc. Very few of the people that really deserve the benefit ever get it and if those lazy-ass welfare leaches would stop being rewarded for having more kids we might get somewhere. I have seen the abuses of the system for many years now and I am utterly disgusted by not only the people that do it, but the people that defend them.

The latest spin from Obama is that he wants to give tax breaks to 95% of Americans. Where does he get his stats????? 95% of Americans don't pay taxes to begin with. So really what he wants to do is raise my taxes, and take my hard-earned money that I made by sacrificing time from my wife and kids, etc and give it to some lazy-ass dead beat that doesn't give a damn about their own kids, or the example they set for them!!!! That is Socialism or Income Redistribution...call it what you want but it's wrong!

For the record....my single mother raised 4 kids on her own and taught us to NEVER ask for anything from anyone. She worked her ass off and never took a dime of welfare. We didn't have much growing up, but I was taught to take of, and support myself. I put myself through college, and have the student loans to prove it. There are plenty of examples of those people out there that truly need help....either temporarily or permanently and I have no problem giving someone a hand up, or take care of those that can't do it themselves. But this is insane.

Liberals/Democrats are using the uneducated and poor as pawns and do not have a vested interest in this constituency ever succeeding. When will minorities ever wise up to the fact that there is a better way to live?????? And it doesn't include handouts!

Have none of these Socialists (OBama and his ilk) ever read Atlas Shrugged? We are fast approaching those same results.

John Galt for President!

Oh, and one other thing, I AM PROUD TO BE A BLACK MAN!!!!


J.L. Hudson

10/07/2008 1:48 PM  

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