Editore"s Note
Tilting at Windmills

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October 15, 2008

MCCAIN CAMPAIGN CONFUSED ABOUT PAYROLL TAXES.... For about a week now, Republicans have been trying to make the case that Barack Obama is exaggerating his tax cut proposal. Obama has argued that his policy would give 95% of Americans a tax cut. Republicans have said this is impossible, since more than a third of American workers don't make enough money to pay any federal income taxes.

I'd hoped the argument was so obviously dumb that it would just quickly disappear, its proponents humiliated, but no such luck. John McCain made the claim a few days ago, the far-right editorial page of the Wall Street Journal followed suit, right-wing blogs have run with it, and today, the McCain campaign's Douglas Holtz-Eakin made the same argument to reporters.

The problem is, these folks seem surprisingly unfamiliar with payroll taxes. Robert Gordon and James Kvaal set the record straight.

It is true that Obama has proposed several tax credits that include families who earn too little to owe income taxes, a group that include about half of families with children. But many of these families work and pay thousands of dollars in other taxes. For example, a family of four must earn about $25,000 before owing income taxes -- but they must pay payroll taxes on the first dollar they earn. Indeed, Obama's biggest refundable credit is designed to cushion the blow of payroll taxes.

Refundable credits are also often the most economically efficient way to help families, according to now-CBO director Peter Orszag. Maybe that's why McCain's own health care plan uses refundable credits.

But McCain is echoing Phil Gramm's and Newt Gingrich's old claim here that tax credits for low-income workers amount to welfare. The Wall Street Journal editorial page charmingly referred to people too poor to pay income taxes as "lucky duckies."

As a presidential candidate, George W. Bush "sandbagged" these Republicans by defending the earned income tax credit. Now McCain is standing with Gramm and Gingrich, to the right of Bush.

Why the McCain campaign sees this as a winning argument remains a mystery.

Steve Benen 4:05 PM Permalink | Trackbacks | Comments (21)

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Comments

At what point did Obama's statement about taxes get turned into "95% will get a tax cut"? What he's said was that 95% won't see a tax increase and some could see a tax cut.

Has Obama himself shifted? This isn't to discount the above defense, I just think his pledge has gotten muddled a bit.

Posted by: Trevor J on October 15, 2008 at 4:09 PM | PERMALINK

The Wall Street Journal doesn't understand payroll taxes? They seriously don't understand that most Americans pay taxes based on a W2 from their employer?

I really hope I mistunderstood something here.

Posted by: amy on October 15, 2008 at 4:14 PM | PERMALINK

They have no winning arguments. Their hope is to throw out so many lies that some stick. There are just too many lies to be debunked...

Posted by: John McCain: Worse than Bush on October 15, 2008 at 4:15 PM | PERMALINK

I really hope I mistunderstood something here. amy

Payroll taxes are social security and medicare, as opposed to income taxes.

Posted by: Danp on October 15, 2008 at 4:17 PM | PERMALINK

It really is funny reading the WSJ piece, as they continually refer to "income tax", as if that's the only tax that exists. And so, because Obama isn't cutting income taxes for these people, they're nothing more than "government handouts".

And it really bugs them that these "handouts" are phased out if you make more money. I guess tax cuts are only worth it if the rich get a bigger share. They actually suggest that people will try to make less money as a way of getting a bigger savings at tax time. The idea that people make all their decisions based upon a detailed study of our tax code is quite mind boggling.

Posted by: Doctor Biobrain on October 15, 2008 at 4:27 PM | PERMALINK

Frankly, I don't know why we don't just:

1. Remove the cap from payroll taxes--thereby, making it a flat tax.

2. Exempt the first $10,000 (give or take) of payroll from payroll taxes--thereby making it a progressive tax.

3. Offset the gains from step 1, by lowering the tax rate for all (assuming we won't have to turn around and raise it again for the baby boomers).

With such modifications, we can reduce the EITC and other such approaches to offsetting the effects of regressive federal and state taxes.

Posted by: CJ on October 15, 2008 at 4:30 PM | PERMALINK

Danp @4:17

I know what payroll taxes are. They are itemized on my check stub;FICA, MEDFICA, FWTH, STWTH, etc... Thanks anyways.

I'm worried that The Wall Street Journal doesn't realize that most Americans file taxes based on their paycheck deductions ie their W2.

The Wall Street Journal for crying out loud.

Posted by: amy on October 15, 2008 at 4:31 PM | PERMALINK

Doctor, that is a constant annoyance to me as well. Anytime you hear a republican talk about the distribution of the tax burden, they mean federal income taxes ONLY. Not only do they ignore payroll taxes, but sales, property, gasoline, alcohol, tobacco, etc. taxes that are very regressive on average.

Economists for the National Bureau of Economic Research did a study that showed almost all of us pay around 40% in taxes - rich, poor, young, old. But you'd think from the right wingers that only the top 1% pay anything. It's disgusting.

Summary of the NBER article is here:

http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTaxRate40.aspx

Posted by: Jasper on October 15, 2008 at 4:37 PM | PERMALINK

It makes perfect sense that the WSJ wouldn't know about payroll taxes. After all, there are no payroll taxes on capital gains and dividends. This, in addition to the fact that these income streams are taxed at a lower rate than wages.

Posted by: sparky on October 15, 2008 at 4:40 PM | PERMALINK

This isn't the first time McCain has gotten confused about payroll taxes:

Is John McCain Stupid?
By DANIEL HENNINGER

On Sunday, he said on national television that to solve Social Security "everything's on the table," which of course means raising payroll taxes. On July 7 in Denver he said: "Senator Obama will raise your taxes. I won't."

This isn't a flip-flop. It's a sex-change operation.
.

Posted by: Grand Moff Texan on October 15, 2008 at 4:40 PM | PERMALINK

McCain campaign confused about payroll taxes

McCain is probably confused about the color of his underwear?

Posted by: on October 15, 2008 at 4:49 PM | PERMALINK

Based on the way I read this thread, McCain is perfectly correct in that a third of Americans don't pay income tax. Gordon and Kvaal indeed distinguish the concept of income tax from the so-called payroll taxes.

Posted by: pencarrow on October 15, 2008 at 4:59 PM | PERMALINK

"Why the McCain campaign sees this as a winning argument remains a mystery."

It is the "class warfare" card, Steve. The GOP
has been playing that card for 40 years... and winning more often than not. Just ask Warren Buffett.

Posted by: tom p on October 15, 2008 at 5:01 PM | PERMALINK

"Economists for the National Bureau of Economic Research did a study that showed almost all of us pay around 40% in taxes - rich, poor, young, old. But you'd think from the right wingers that only the top 1% pay anything. It's disgusting."

Well... actually that article says the *marginal* tax rate is about 40% for just about everyone.

I believe the approximate total taxes (federal, state and local) as share of income for American households by income is about:
Bottom 20% - 19.7%
Second 20% - 23.3%
Middle 20% - 27%
Fourth 20% - 29.8%
Next 15% - 31.6%
Next 4% - 32.2%
Top 1% - 32.8%

http://www.rationalrevolution.net/articles/american_income_taxation.htm

Deep within the top 1% are super rich people who's total tax as share of income goes down due to the lower capital gains tax rate. A NYT article had the data up to some really high incomes, but I can't find a link to it.

So excepting the super rich the total US tax system is moderately progressive. Personally I think that the vast majority of people, if asked in their current state of ignorance, would say they want taxes to be more progressive than they actually are. Quite a few of those people, however, think taxes are much more progressive than they are in reality so they say they want taxes to be "flatter".

Posted by: JeffF on October 15, 2008 at 5:17 PM | PERMALINK

pencarrow: "Based on the way I read this thread, McCain is perfectly correct in that a third of Americans don't pay income tax. Gordon and Kvaal indeed distinguish the concept of income tax from the so-called payroll taxes."

Forgive me, but I think you may be missing the point. By referencing income taxes only, whether explicitly or implicitly, McCain, Gordon and Kvall are cherry-picking data to support their bogus arguments.

Amy: "I know what payroll taxes are. They are itemized on my check stub;FICA, MEDFICA, FWTH, STWTH, etc... "

Amy--you clearly do not know what payroll taxes are. Federal and state withholding are payments toward your annual federal and state income tax liability (these are not, by definition, payroll taxes). Payments toward Social Security and Medicare (7.65% of gross pay for employees and 15.3% of gross for self-employed workers) are, by definition, payroll taxes.

Posted by: CJ on October 15, 2008 at 5:31 PM | PERMALINK

thanks CJ

Clearly I'm the moron, not The Wall Street Journal.

Posted by: amy on October 15, 2008 at 6:02 PM | PERMALINK

The same millionaires and billionaires who blame the economic meltdown on anti-redlining laws are the ones who think this is a winning argument. Shorter version- poor people (who are probably not the same color as you) are getting something. Be pissed about it.

Posted by: bluewave on October 15, 2008 at 6:36 PM | PERMALINK

So, I was half correct

FICA & MEDFICA = payroll taxes
FWTH & SWTH = income taxes

Posted by: amy on October 15, 2008 at 6:50 PM | PERMALINK

The other night Ari Fleischer was on the Daily Show, and one point he really tried to emphasize is what a serious problem it is that something like 100 million people don't pay any income tax.

I really wanted Jon Stewart to say, "OK, so let me see if I can paraphrase here. Ari Fleischer wants to raise taxes on poor people. Is that right?"

Sadly, he didn't say anything remotely like this and an opportunity was lost. But, in fact, that is exactly what these guys are saying when they talk like this. Republicans (think-tank and pundit Republicans, anyway) want to raise taxes on poor people. Let's see them sell that.

Posted by: Rob Mac on October 15, 2008 at 7:09 PM | PERMALINK

Another bit of sophistry from the GOP: Small Business owners paying taxes if they 'earn' over $250,000. They purposly confuse gross sales with net income- Limbaugh went on and on the other day about various industries with 'small'business owners making millions. I suppose they don't think we understand that gross sales minus costs (materials, payroll, etc) equals net income. Greatly simplified, but still.

Posted by: DAY on October 15, 2008 at 7:37 PM | PERMALINK

i was watching cnbc today (as the market dropped faster than mcmuffin's poll numbers), some rich guy responded to somebody's mention of obama's tax cuts for 95% of americans as "that's just welfare."

i shouted out to the tv "what do you call a 700 billion dollar bail out for banks?"

the tv ignored me.

Posted by: skippy on October 15, 2008 at 8:16 PM | PERMALINK




 

 

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