Sunday, October 26, 2008

Progressive taxation is not the same as "spread the wealth."

There seems to be a lot of confusion about Obama's "spread the wealth" comment, with pundits arguing that this means nothing more than reflecting a desire for progressive taxation. For instance, we have this editorial out of Socialist Vermont:

John McCain knows full well that the country has always had a progressive tax code: i.e. spreading the wealth around. (For unto whomsoever much is given, of him shall be much required” according to the New Testament’s Book of St. Luke.)
Our federal government spends roughly $3 TRILLION a year and the population is roughly 300 million, which works out to $10,000 per person per year. With a median family in the US earning around $50,000/year and having 3 members, it is clear that this family can't afford to pay its "fair share" of $30,000/year in taxes. Without a drastic slashing of the federal budget, we are forced into a progressive tax system, where by progressive I simply mean the wealthy pay more in taxes than the not so wealthy. Noone, including McCain, is seriously arguing that taxes should be assessed on a "per person" basis. But this doesn't mean wealth is being spread around, it just means those less wealthy are not paying their fair share of federal taxes.

What Obama is proposing goes much further. He wants to drastically expand the amount of money that the government takes from the rich and, rather than spend it, just writes checks and sends it to other citizens. We already have a little of this, for example the earned income tax credit. What Obama proposes is an enormous increase in this type of wealth transfer, through mutliple "refundable tax credits."

The quickest way to see this is to ask yourself what taxes Obama is planning to cut. He promises tax cuts for 95% of Americans but, if you look at his plan, there aren't any taxes he actually plans to cut. What tax rates will go down under the Obama plan? NONE! Instead he proposes multiple tax credits, which end up being checks for millions of Americans. He's not proposing to lower any of the income tax rates. He's not planning on lowering taxes on capital gains, dividends or corporate taxes. Instead he proposes multiple changes to the tax system which do nothing but redistribute wealth.


Dawg Doc said...

Your assessment of the tax situation leaves much to be desired.

Should we abolish the earned income tax credit? Should we eliminate college tax credits? These are simply redistributions of wealth, are they not? Do you oppose McCain's $5000 family tax credit to use for purchasing health insurance? Who is paying for this? The wealthy, of course. John McCain wants to take money from the wealthy to provide average Americans with $5k to buy health insurance for their families. how is this not socialism if Obama's plans are socialist?

John McCain has promised to balance the budget by the end of his first term. How will he do that? By cutting taxes? I don't think so, Tim. How does he plan to pay for his $1.5 trillion in new spending? A freeze on government spending won't do it because the programs he exempts make up 80% of federal spending. Cut out all the pork projects (which he can't do anyway) by vetoing every bill with earmarks? I haven't laughed that hard in years. That $18 billion pig won't fly.

So tell me, just how does he accomplish this? Don't spin anymore rhetoric about Obama. Tell me specifically how your guy will achieve his promises?

right-wing prof said...

Please give me a solid reference for your claim that McCain is proposing $1.5 trillion in new spending. I'm not going to tell you how to balance the budget in 4 years because I dont' think it's necessary and because the revenue predictions are impossible at this point. Do you seriously think spending under Obama will be less than under McCain?

I will answer your questions:

1. Yes I think we should abolish the earned income tax credit.

2. Yes I think we should eliminate college tax credits.

3. There is no reason anymore that health insurance should be tax deductible, this is just historical accident that let companies get around wage freezes. Of course politically it would be impossible to just declare tomorrow that this tax break is gone, I think McCain's plan is a good step toward fixing this.

Dawg Doc said...

Fair enough on the EIC and College Tax Credits. Of course, McCain and I both disagree with your position. I have been both in the position of making plenty of money and paying the taxes for others to have those credits and, as a grad student, being in the position to utilize those credits.

I'm not following you on the health insurance thing. Are you saying that those who itemize their taxes should not be able to deduct their premiums and out of pocket medical expenses?

From what I understand, McCain is proposing to tax the health insurance benefits you receive from your employer (mine are about $4000 per year = about $1000 increase in taxes) but then offset that with a $2500 tax credit to go out and purchase my own insurance. If my employer then dropped health coverage it would cost me , at today's rates, an additional $1500 per year out of pocket, if I could even purchase insurance.

Sorry, I misstated earlier the spending issue. I meant to say that McCain will add an extra $1.5 trillion to the national debt.

right-wing prof said...

I don’t see why health insurance premiums should be tax deductible at all for anyone.

If your employer is paying $4000/year for their health insurance and they drop it then they will pay you $4000 more in salary. There is nothing special about health insurance that makes employers willing to spend money on it but not to spend the same money on salaries, it is all part of a total compensation package.

Dawg Doc said...

I disagree that the employer would increase my salary by $4000. I work for the state and they'd love to cut that budget cost.

right-wing prof said...

THere's just no logic to that. If you are an employee and you manged to negotiate yourself $44,000 in compensation say, with $4,000 in health benefits and 40,000 salary, there is no reason Mccain's tax proposals will make you suddenly unable to still negotiate for 44,000 in compensation.

Dawg Doc said...

If salary were still based on negotiating skill you might have a point. For most of us, salary is not negotiable. My salary is set by the state board as are the benefits and how much the state will pay towards them.

I do understand the supply and demand concept but in academia supply almost always exceeds demand. That leaves most of us with little bargaining power, at least when starting out.

The guy who works for the small business down the street? No negotiating power at all. Businesses always hold all the cards as the playing field is never level unless unions are involved. Then the playing field tilts in the opposite direction.