Liberal Values Defending Liberty and Enlightened Thought

Republicans try to win elections by using fear. Fear of terrorism has been their major act for the past several years, and before that they used fear of Communism. If that’s not enough, they’ll scare voters by saying Democrats will take way their guns or bibles. Then there’s their old routine of saying Democrats will take away all your money, which basically circles back to using fear of Communism. This year we’ve already seen a number of erroneous comments from John McCain and other Republicans about Barack Obama’s tax plans. Fortunately they are being debunked from a variety of sources.

Yesterday The Entrepreneurial Agenda, a blog at Inc.com, looked at accusations that Obama would harm small business by raising taxes. McCain’s argument is that, “Small businesses are the job engine of America, and I will make it easier for them to grow and create more jobs….If you are one of the 23 million small business owners in America who files as an individual rate payer, Senator Obama is going to raise your tax rates.” The Agenda responds:

Well, McCain is certainly, unequivocally wrong that Obama will raise taxes on 23 million small businesses. Let’s begin by establishing the figures. According to Census Department (as reported by SBA), in 2005 there were some 26 million firms with 500 or fewer employees. (McCain’s figures apparently come from 2002.) Of these, 20 million have no employees at all. Many of these are glorified hobbies, others are lucrative consulting gigs, but as the nonpartisan Factcheck.org points out in a thorough debunking, “McCain is arguing that Obama’s tax increase would ‘destroy jobs,’ but he’s counting mostly firms that don’t produce any.”

Obama has promised to repeal the Bush tax cuts on couples making more than $250,000 and individuals earning over $200,000 — basically, all of the top tax bracket and reaching halfway down the second-highest tax bracket. And how many small businesses would that affect? The Tax Policy Center calculates the number of tax filers (“units,” it calls them) in each bracket who reported some small business income or loss, and in 2007 that amounted to just 481,000 units — just 1.4 percent of all those who reported small business income. (The Tax Policy Calculates that 32 million tax units had small business income, which includes straight business or farm income, or income passed from partnerships or S-Corps.) And that number is undoubtedly high, because many filers in the second highest (33 percent) tax bracket earned less than Obama’s proposed threshold. Others are professionals — lawyers or accountants, say — who’ve organized their practices into partnerships. In any case, the vast majority — around 99 percent — of small businesses, however you define them, would not see their taxes increased under Barack Obama’s scheme.

A more interesting question is whether small businesses would actually see a bigger tax cut under Obama or McCain. Again, if the number-crunchers at the Tax Policy Center is to be trusted, then the laurels go to Obama, who’s proposing a variety of additional tax cuts targeted toward low-income and working families. (Here is the analysis, which includes very detailed descriptions of the candidates’ proposals. More detailed, in fact, than the candidates’ own position papers. Because the candidates haven’t fully fleshed out their tax proposals publicly, the Center has talked informally with campaign advisers and made its own assumptions to fill in the blanks.) Anyone earning under $112,000 in 2009 — or 80 percent of the population — is more likely to see a higher after-tax income under Obama than under McCain.

The post refers to this post at factcheck.org which debunks McCain’s charges on taxes on small business. This isn’t the only time that factcheck.org has debunked false claims on Obama’s tax plans recently. They debunked a claim that Obama “voted to raise income taxes on individuals who earn as little as $32,000 per year.” They concluded that McCain’s $32,000 figure is “phony.” That is only one of many false claims on Obama’s record made by Republicans. Factcheck.org also debunked a claim from the McCain campaign and the Republican National Committee that Obama voted for higher taxes 94 times.

The report of the Tax Policy Center provides other important information which I previously discussed here. While us affluent wine drinking elitists who back Obama might wind up paying more in taxes under Obama than McCain, it is worthwhile to look at how much more this will be to determine if it is really worth compromising principles and voting Republican to save a few bucks. In my previous post, which provides more details and links for those who want to review the numbers, I quoted from Hilzoy who noted:

people below the top five percent (which starts at $237,040) do not lose after-tax income under Obama’s plan, and people making $237,040-$619,561 lose all of $12 a year, on average. It’s only in the top one percent that people take a sizable hit. But since so much of the Bush tax cuts went to them, that seems fair to me.

Rather than paying higher taxes under Obama the difference is that most affluent Obama supporters will see  a smaller tax cut than they would receive from McCain while the more affluent will see a small tax increase which we can easily afford. It isn’t until the top one tenth of one percent where there is a major difference. The top 0.1% receives an average tax cut of $269,364 from McCain while they would see an average tax increase of $701,885 under Obama. Again, this is largely a consequence of them receiving the largest benefits under Bush’s plan.  On the other end of the spectrum, McCain would give the lowest quintile an average tax cut of $19 while Obama would give them an average tax cut of $567.

Obama described his own tax policies in a video I posted here. In the video Obama makes it clear that those earning under $250,000 will not receive an increase in taxes–not in their income tax, not in Social Security payroll taxes, and not in capital gains taxes. The vast majority will receive a tax cut.

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