Bermuda Fables

"I have come to the conclusion that politics are too serious a matter to be left to the politicians." – Charles De Gaulle

A comment on the Spread the Wealth post that needs to be emphasized… (thanks B) October 29, 2008

Filed under: Uncategorized — alsys @ 11:55 am

Okay, finally found something re the impact of eliminating the Bush tax cuts. It’s on a website I usually don’t follow but everyone else seems to be ignoring the calculations. [If you don’t believe the article you can do your own calculations – there’s a link to the actual IRS forms].

Senator Obama’s Four Tax Increases for People Earning Under $250k

I confess. Senator Obama’s two tax promises: to limit tax increases to only those making over $250,000 a year, and to not raise taxes on 95% of “working Americans,” intrigued me. As a hard-working small business owner, over the past ten years I’ve earned from $50,000 to $100,000 per year. If Senator Obama is shooting straight with us, under his presidency I could look forward to paying no additional Federal taxes — I might even get a break — and as I struggle to support a family and pay for two boys in college, a reliable tax freeze is nearly as welcome as further tax cuts.

However, Senator Obama’s dual claims seemed implausible, especially when it came to my Federal income taxes. Those implausible promises made me look at what I’d been paying before President Bush’s 2001 and 2003 tax cuts, as well as what I paid after those tax cuts became law. I chose the 2000 tax tables as my baseline — they reflect the tax rates that Senator Obama will restore by letting the “Bush Tax Cuts” lapse. I wanted to see what that meant from my tax bill.

I’ve worked as the state level media and strategy director on three Presidential election campaigns — I know how “promises” work — so I analyzed Senator Obama’s promises by looking for loopholes.

The first loophole was easy to find: Senator Obama doesn’t “count” allowing the Bush tax cuts to lapse as a tax increase. Unless the cuts are re-enacted, rates will automatically return to the 2000 level. Senator Obama claims that letting a tax cut lapse — allowing the rates to return to a higher levels — is not actually a “tax increase.” It’s just the lapsing of a tax cut.

See the difference?

Neither do I.

When those cuts lapse, my taxes are going up — a lot — but by parsing words, Senator Obama justifies his claim that he won’t actively raise taxes on 95 percent of working Americans, even while he’s passively allowing tax rates to go up for 100% of Americans who actually pay Federal income taxes.

Making this personal, my Federal Income Tax will increase by $3,824 when those tax cuts lapse. That not-insignificant sum would cover a couple of house payments or help my two boys through another month or two of college.

No matter what Senator Obama calls it, requiring us to pay more taxes amounts to a tax increase. This got me wondering what other Americans will have to pay when the tax cuts lapse.

For a married family, filing jointly and earning $75,000 a year, this increase will be $3,074. For those making just $50,000, this increase will be $1,512. Despite Senator Obama’s claim, even struggling American families making just $25,000 a year will see a tax increase — they’ll pay $715 more in 2010 than they did in 2007. Across the board, when the tax cuts lapse, working Americans will see significant increases in their taxes, even if their household income is as low as $25,000. See the tables at the end of this article.

Check this for yourself. Go to http://www.irs.gov/formspubs/ and pull up the 1040 instructions for 2000 and 2007 and go to the tax tables. Based on your 2007 income, check your taxes rates for 2000 and 2007, and apply them to your taxable income for 2007. In 2000 — Senator Obama’s benchmark year — you would have paid significantly more taxes for the income you earned in 2007. The Bush Tax Cuts, which Senator Obama has said he will allow to lapse, saved you money, and without those cuts, your taxes will go back up to the 2000 level. Senator Obama doesn’t call it a “tax increase,” but your taxes under “President” Obama will increase — significantly.

Senator Obama is willfully deceiving you and me when he says that no one making under $250,000 will see an increase in their taxes. If I were keeping score, I’d call that Tax Lie #1.

The next loophole involves the payroll tax that you pay to support the Social Security system. Currently, there is an inflation-adjusted cap, and according to the non-profit Tax Foundation, in 2006 — the most recent year for which tax data is available — only the first $94,700 of an unmarried individual’s earnings were subject to the 12.4 percent payroll tax. However, Senator Obama has proposed lifting that cap, adding an additional 12.4 percent tax on every dollar earned above that cap — and in spite of his promise, impacting all those who earn between $94,700 and $249,999.

By doing this, he plans to raise an additional $1 trillion dollars (another $662.50 out of my pocket — and how much out of yours?) to help fund Social Security. Half of this tax would be paid by employees and half by employers — but employers will either cut the payroll or pass along this tax to their customers through higher prices. Either way, some individual will pay the price for the employer’s share of the tax increase.

However, when challenged to explain how he could eliminate the cap AND not raise taxes on Americans earning under $250,000, Senator Obama suggested on his website that he “might” create a “donut” — an exemption from this payroll tax for wages between $94,700 and $250,000. But that donut would mean he couldn’t raise anywhere near that $1 trillion dollars for Social Security. When this was pointed out, Senator Obama’s “donut plan” was quietly removed from his website.

This “explanation” sounds like another one of those loopholes. If I were keeping score, I’d call this Tax Lie #2.

(updated) Senator Obama has also said that he will raise capital gains taxes from 15 percent to 20 percent. He says he’s aiming at “fat cats” who make above $250,000. However, while only 1 percent of Americans make a quarter-million dollars, roughly 50 percent of all Americans own stock – and while investments that are through IRAs, 401Ks and in pension plans are not subject to capital gains, those stocks in personal portfolios are subject to capital gains, no matter what the owner’s income is. However, according to the US Congress’s Joint Economic Committee Study, “Recent data released by the Federal Reserve shows that nearly half of all U.S. households are stockholders. In the last decade alone, the number of stockholders has jumped by over fifty percent.” This is clear – a significant number of all Americans who earn well under $250,000 a year will feel this rise in their capital gains taxes.
Under “President” Obama, if you sell off stock and earn a $100,000 gain — perhaps to help put your children through college — instead of paying $15,000 in capital gains taxes today, you’ll pay $20,000 under Obama’s plan. That’s a full one-third more, and it applies no matter how much you earn.

No question — for about 50 percent of all Americans, this is Tax Lie #3.

Finally, Senator Obama has promised to raise taxes on businesses — and to raise taxes a lot on oil companies. I still remember Econ-101 — and I own a small business. From both theory and practice, I know what businesses do when taxes are raised. Corporations don’t “pay” taxes — they collect taxes from customers and pass them along to the government. When you buy a hot dog from a 7/11, you can see the clerk add the sales tax, but when a corporation’s own taxes go up, you don’t see it — its automatic — but they do the same thing. They build this tax into their product’s price. Senator Obama knows this. He knows that even people who earn less than $250,000 will pay higher prices — those pass-through taxes — when corporate taxes go up.

No question: this is Tax Lie #4.

There’s not a politician alive who hasn’t be caught telling some minor truth-bender. However, when it comes to raising taxes, there are no small lies. When George H.W. Bush’s “Read my lips — no new taxes” proved false, he lost the support of his base — and ultimately lost his re-election bid.

This year, however, we don’t have to wait for the proof: Senator Obama has already promised to raise taxes, and we can believe him. However, while making that promise, he’s also lied, in at least four significant ways, about who will pay those taxes. If Senator Obama becomes President Obama, when the tax man comes calling, we will all pay the price. And that’s the truth.

Detailed tables showing various changes are contained in the article.

* When “President” Obama allows President Bush’s tax cuts of 2001 and 2003 to expire, this will amount to a de facto tax increase –

  1. http://www.americanthinker.com/2008/10/senator_obamas_four_tax_increa.html

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18 Responses to “A comment on the Spread the Wealth post that needs to be emphasized… (thanks B)”

  1. Blankman Says:

    By the way, the “tax cuts for people making under $250,000 a year” has suddenly become $200,000 a year (and Biden said separately $150,000 a year).

    THE SPIN: “Here’s what I’ll do. Cut taxes for every working family making less than $200,000 a year. Give businesses a tax credit for every new employee that they hire right here in the U.S. over the next two years and eliminate tax breaks for companies that ship jobs overseas. Help homeowners who are making a good faith effort to pay their mortgages, by freezing foreclosures for 90 days. And just like after 9-11, we’ll provide low-cost loans to help small businesses pay their workers and keep their doors open. ”

    THE FACTS: His proposals—the tax cuts, the low-cost loans, the $15 billion a year he promises for alternative energy, and more—cost money, and the country could be facing a record $1 trillion deficit next year. Indeed, Obama recently acknowledged—although not in his commercial—that: “The next president will have to scale back his agenda and some of his proposals.”

    http://www.breitbart.com/article.php?id=D944H6EO0&show_article=1

  2. Ectology Says:

    I have deduced a disastrous result of Senator Obama’s economic plan, which no one seems to have explored in the media or via the Internet. It is as follows….

    1- Senator Obama purposes to raise taxes to those making yealrly over $250.000 by 3%.

    The overlooked problem with his proposal, that unfortunately no one has dove into is, Family’s with Children.

    What if Family A – Who makes $250.000 yearly, has four small children and a
    $400.000 dollar mortgage.

    Compared to

    Family B – who makes $250.000 yearly, has no children and a $100.000 mortgage.

    Senator Obama’s plan is not factoring children who require school costs, larger living quarters, higher insurance’s, food, clothing, daycare and so forth. While those without children, a low mortgage and living in a smaller home, can possibly survive this plan a bit further.

    With this Spread the wealth plan, Senator Obama is jeopardizing more than small businesses. It is everything he is saying he will protect. Education, Insurance’s, Children and Home Mortgages.

    Will Senator Obama’s plan be different for a bachelor without any children at
    $250.000 yearly?

    Compared to

    A Family of 5 earning $250.000 yearly.

    It would take Trillions of dollars yearly to deduce how Senator Obama’s plan would differ from …

    A – A Business who’s owner was a self supportive Bachelor.

    Or

    B- A business who’s owner has children and more costs in which to raise them adequately.

    The main discussions of Senator Obama has been spreading the wealth to those less fortunate in their small businesses or endeavors. The term “Taking food from my children’s mouth.” Does seem to apply to his Spread the wealth proposal.

    The costs are astronomical when you have children. Being he has two children of his own, I am very surprised that this plan left out what I have entitled
    the “Family Clause .”

    If you are interested in contacting me with comments, please do so.

    metalviolinist@aol.com

    My name is Skyler James and I am a student of Psychology, Music Teacher, Writer and Inventor.

    I am not a Democrat nor Republican. I am a proud American and concerned home owner.

    Please email me your thoughts.

    A brief summary and extension of my thoughts,

    I had a few moments to the laptop. I added another topic of my concern phased into a question. How can we tax all those over $250.000 as the same economic level? That being when there are so many factors dealing with the single, opposed to family living arraignments / costs. My concerns are quite simply if a couple has another child and costs of living go up’ that coincide the 3% tax increase. Will that put their companies employees job in jeopardy, do to the 3% increase will minimize the business owners recourses to keep him working? Transferring the 3% of the unemployed worker to now their child’s well being. It is a meltdown process, do to there are way to many factors to the out right plan. I feel it will never be possible without an “Individual Clause ” and a ” Family Clause ” tax proposal set in place.

  3. Blankman Says:

    Ectology, it’s actually not clear what the threshold is. Originally Obama said $250,000, the last ad I saw had him saying $200,000, and recently Biden said $150,000. Apparently Richardson said $120,000 (although I haven’t seen that speech so I can’t confirm it) and, speaking from memory, I believe Obama voted in favour of an increase to apply to anyone making more than $42,000 not that long ago.

  4. Cahow Says:

    Whats your answer Blankman? What would you do since every other item on the table is noll and void.?

  5. blankman Says:

    What would you do since every other item on the table is noll and void.?

    Easy answer. Elect McCain.

    Unfortunately I don’t think that’s going to happen. 😦

  6. wildchild Says:

    According to FactCheck.org, “McCain misrepresents Obama’s tax proposals again. And again, and again.”

    http://www.factcheck.org/elections-2008/more_tax_deceptions.html

    The better question is how the United States is going to continually fund two wars. There is currently a $10 Trillion deficit.

  7. blankman Says:

    There have been plenty of half truths thrown out by both sides.

    On the subject of taxes, Obama has said the cutoff point is $250,000 then $200,000 then Biden has said $150,000 and now Richardson has said $120,000. What’s next? Back to $42,000 (or $60,000 if you prefer)?

    http://www.eyeblast.tv/public/checker.aspx?v=e46U2GuzIr

    And, as the original article above says, that doesn’t take into account the impact of letting the Bush tax cuts expire. [The actual article does contain tables showing the impact of the change – they just don’t copy. If you don’t like the source there is also a link to the IRS’s site so you can do the calculations yourself.] Of course Obama and crew are adamant that letting the cuts expire is not a tax increase, even though tax bills will increase.

  8. Guilden Says:

    Obama and McCains tax plans aside, the U.S. is fighting 2 wars, one is costing them $10 billion per month and there has just been a nearly $1 trillion economic bailout, with apparently more to come. No matter how you slice and dice it all of this has to be paid for and the only way for the payments to be made is through an increase in taxation. The question than becomes which sector of the economy foots the larger portion of the bill.

    Obama and McCain are focuses on getting elected but neither has been fully honest with the U.S. electorate and that truth is that taxes HAVE to be increased in order to cover the escalting cost of operating the country.

  9. wildchild Says:

    I agree with Guilden who cares about tax cuts when you are spending so much on wars. I don’t understand why McCain is talking about tax cuts when he is for a war that is costing billions of dollars. Obama is no better. He wants to draw down Iraq to go to Afghanistan. How is McCain going to pay for two wars without raising taxes? Continue to borrow from countries in Asia? I mean come on that is a whole another issue.

  10. blankman Says:

    That’s not the point of this thread. It started because I commented on another thread that Obama’s tax cuts didn’t take into account the cancellation of the Bush tax cuts – allowing those to expire will actually increase taxes.

    And that doesn’t count the rest of his “plan”.

    He’s said that he will cut taxes for 95% of Americans. Given that roughly a third of Americans don’t pay any taxes now, that’s quite a feat.

  11. Guilden Says:

    Blankman,

    I can’t sday I disagree with you but both Obama and McCain are not being completely honest on taxes because the reality is with the wars and the financial bailout package neither will be in a position to cut taxes, both will have to forget their initial proposals and taxes will have to be raised.

    Remember, however, that this is election season and during this season unattainable promises are ripe for the picking.

    What I find even more fascinating, however, is that Palin claims that she and McCain will have the budget balanced in the first 4 years in office. Utter and complete nonsense based on the current evironment. Spending will have to increase significantly, contrary to McCain claiming that he was bring a spending freeze.

  12. blankman Says:

    I don’t know how much spending would increase under McCain. Last time I looked Obama’s promises totalled over a trillion dollars – hate to break the news to his fans but there ain’t enough rich people out there to carry the freight. The rest of America will have to pay – but Obama is buying support with promises to give people free stuff.

    And Obama definitely isn’t going to do it – it’s not his wealth he’s talking about sharing. Not when their charitable donations amount to 1% of their income. (By the way, Biden’s contributions amount to 0.2% of his income.)

  13. wildchild Says:

    Blankman,

    I don’t understand. How would spending not increase under McCain? He talks about a surge in Afghanistan and winning the war in Iraq. That will increase spending. The rich don’t pay equal shares in the Social Security system so why do they need tax breaks. Bush tax cuts were aimed at them and his idea that the extra money will trickle down.

    What exactly is Obama promising to give away free?

  14. blankman Says:

    What exactly is Obama promising to give away free?

    Everything. [Let’s start with a welfare check tax cut for the third of people that don’t pay taxes.]

    Of course the fact is nothing is “free”. That’s just a code word for “somebody else will pay”.

    The rich don’t pay equal shares in the Social Security system so why do they need tax breaks.

    Do they get more out of it? If not, why should they pay more in?

    While you’re at it, take a look at who pays Federal Income tax.

    The “rich” pay almost all of it as is. About a third of people pay no income tax (so you can’t give them a tax cut – you can give them a Federal Welfare Check and call it something else but it’s not a tax cut). The bottom 50% of filers pay about 4% of the total tax bill.

    Click to access ff114.pdf

  15. wildchild Says:

    Blankman,

    Social Security is a percentage tax of people’s salaries but it is capped at $102,000 so if you make more than that you only get taxed at the $102,000.

    http://www.ssa.gov/OACT/COLA/cbb.html#Series

    I am not saying they should pay more in but how about the same percentage that everyone else pays.

    I know who pays most of the Federal Income tax. I also know there a lot of rich people who don’t pay taxes. Romney’s company made a business out suggesting to his clients on how to move their money out of the US. My point is why is worth talking about tax cuts. It seems like the government needs all the money it can get. What do you suggest? Do you like and/or prefer McCain’s tax plan?

    I know also that the US has given almost a trillion dollars to help the financial sector. Where is that money going to come from?

    What about the people who are losing their homes. Personally I like the idea that McCain proposed about helping people stay in their homes.

    I just don’t understand the rational that we need tax cuts but we are going to spend more money on war and then say that we don’t have enough money to make sure all children have healthcare. it just doesn’t add up to me.

  16. blankman Says:

    I am not saying they should pay more in but how about the same percentage that everyone else pays.

    They do pay the same percentage that everyone else does.

  17. Guilden Says:

    Blankman,

    How can the wealth pay the same percentage as the middle class when Social Security payments cap out at $102,000? In order to pay the same percentage the cap should be removed and be applicable to all income earned. No?

  18. blankman Says:

    No.

    It should be the same percentage of taxable income (i.e., $102,000). And it is.


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