white male consumer

Obama’s Tax Proposals Make a Complex System Worse, John R. Lott, Jr.

I read this article with interest, because while I do not have as extensive a background in economics as Lott, I’m still capable of critical thinking.

One approach [to lower taxes] is to lower the marginal tax rate, the percentage taken for each additional dollar they earn. The other is to increase tax deductions and credits, and to phase 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.

The quoted bit is the classic conservative claim that (insert tax policy) will discourage people from working. But if given tax deductions increase a person’s income, thereby decreasing assistance, we’re essentially talking a zero-sum game here (given no further information)… Besides the illusion that people are earning more. (Which, if anything, would encouraged work by said logic. Right?) Without actually knowing how disposable income would be affected, this claim seems empty.

John McCain’s proposals have top marginal income tax rates of 35 percent for individuals and 25 percent for corporations, while Barack 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.

Here’s the basic premise for the rest of the article. The difference between McCain’s and Obama’s proposed tax rates for individuals doesn’t seem Earth-shattering, but Lott attempts to illustrate just how much Obama will destroy America. (He doesn’t go into the corporate rate here.)

The important thing is that Lott et al aren’t looking at actual tax rates, but effective (estimated) tax burdens. My question is how do tax breaks for lower income individuals affect the effective tax rate for higher income individuals? It shifts the burden statistics-wise, but it doesn’t change the “39.6%” figure of Obama’s plan. It seems as if a person making $250k a year pays X, regardless of whether or not another person who makes less gets a tax break that the first is ineligible for. The article is focused on manipulating already dubious (albiet popular) claims. But then I don’t have a degree in economics, right? Does theory trump reality?

I’m obviously inviting anyone more informed on the subject to take potshots at me.