Republican Tax Scares

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.

Another false claim being spread is seen in a recent column by David Brooks which claims “If Obama’s tax plans go through, those affluent donors could wind up giving over 50 percent of their income to the federal government.” I responded in this post, noting that even those affluent Obama donors making over $250,000 would still wind up paying at a tax rate well below 50%. The exact amount is not known as Obama has not stated an exact amount by which he would increase Social Security taxes on those making over $250,000.

These numbers are all based upon the campaign statements of the candidates. It would be fair to question if things will really turn out as the candidates now claim. One sad fact of politics is that all politicians tend to promise more than they deliver, and the plans of none of the candidates add up, as I recently discussed here. It would cost more than we are likely to raise in tax revenues to pay for everything Obama has promised. The same was true of Hillary Clinton.

The flip side is the tax cuts promised by McCain are not covered by sufficient spending cuts and will result in an even larger increase in the deficit than the programs promised by the Democratic candidates. Earlier in the year  I noted that The Washington Post found “While both Democratic candidates would spend far more on new programs than Mr. McCain would, the Republican’s proposals for new tax cuts dwarf the Democrats’ plans.” Once reality hits them after taking office, It is likely that the tax cuts promised by Obama might not be as large as currently claimed, but those promised by McCain will turn out to be much smaller, even before we need to figure out how to pay for all those wars he might want to start.

Cross posted at The Carpetbagger Report

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8 Comments

  1. 1
    inthewoods says:

    The trouble is that data from these watchdog groups never gets anywhere outside of policy wonks.  The McCain campaigns says these thing – which are obviously lies or misrepresentations – and nothing happens.  As long as there is no accountability for their actions, we can just expect it to keep going.  This is also true for dems btw.  The net is a great outlet for this kind of discussion, but I have little faith that it reaching the average American who, like the radio program I was just listening to, was utterly convinced that Obama was going to raise taxes on him (he described himself as working poor) and McCain would not.  Why is no reporter or major news outlet really pressing McCain (or Obama for that matter) on how he would actually pay for these tax cuts?  That’s the detail the average American doesn’t get, and why the marketing of fear is so successful – it’s so easy when even “top” reporters don’t question the candidate.  Rant over!

  2. 2
    Ron Chusid says:

    That’s true, and it is why I have repeatedly posted items on this topic. I get a lot of hits from search engines asking things like “How much will Obama increase taxes?” At least some people will then be exposed to the facts. Unfortunately many more will only hear the scare tactics from the right wing noise machine.

    Following George Bush, Katrina, and Iraq, more people are now looking beyond the Republican propaganda than in the past. We just have to keep pushing with the facts.

  3. 3
    inthewoods says:

    What I see happening is just more polarization – go read a site like RedState and you’ll see the complete inability to actually critique their own candidate.  I think ThinkProgress may have the same issue.  So, the average American says “you are all talking in technical details, so I’ll vote with who I think I could have a beer.”

    Anyway, I’m just a bit disheartened by the level of political discourse – but I’m really thinking hard about your idea of the left-lib – maybe because I consider myself in that camp – I’d called it rational politics.

  4. 4
    Ron Chusid says:

    The polarization is true of the regular blog readers who already have an allegiance to one party or the other. There are also others who read blogs differently, such as by finding information in blogs through search engines. Hopefully those people don’t already have their minds made up and can be influenced by the facts.

    Another value in posting facts on topics such as this is that often I find discussion forums where people are debating the issues linking to posts here to support their arguments. Most likely the bulk of the people engaged in such arguments already have their minds made up but at least they are forced to respond to the actual facts. Seeing facts which contradict their preconceptions might get a handful of such people to reconsider their views.

  5. 5
    TCG says:

    Actually RedState criticizes their guys all the time. Their blogging doodz R still crazy, but these doodz are still posting that public enemy numba 1 iz Don Young (R-AK). This is largely when it counts least, but they do it.

    This is besides the point.  The GOP promotes memes that are pushed relentlessly. This gets them in trouble when the meme breaks with reality (ex See GWB). But as far as RedState goes, remember John McCain, sucked until he won the nomination. Then Redstate closed ranks. Now he’s teh Awesome.

    About the tax dodge, sunlight is the best way to fight it.  You could imitate the right and scare peeps, but I don’t got the energy to do so.

  6. 6
    cognitive dissident says:

    Of course, GOP scaremongering on taxes is nothing new; they fought against Clinton’s 1993 upper-class tax increase by claiming we’d spiral into a recession…although their Chicken-Little fears were the opposite of what actually happened. Here’s a sampling of their remarks on Clinton’s 1993 OBRA:

    “The impact on job creation is going to be devastating.”
    (Dick Armey)

    “The tax increase will…lead to a recession…and will actually increase the deficit.”
    (Newt Gingrich)

    “I will make you this bet. I am willing to risk the mortgage on it…the deficit will be up; unemployment will be up; in my judgment, inflation will be up.”
    (Bob Packwood)

    “The deficit four years from today will be higher than it is today, not lower.”
    (Phil Gramm)

    “The President promised a middle-class tax cut, yet he and his party imposed the largest tax increase in American history. [sic] We hope his higher taxes will not cut short the economic recovery and declining interest rates he inherited… Instead of stifling growth through higher taxes and increased government regulations, Republicans would take America in a different direction.”
    (Bob Dole)

    The GOP has indeed taken American in a “different direction”…we’re practically back to the early 1900s. It’s time to reverse course and begin moving forward again.

  7. 7
    inthewoods says:

    A Republican meme that really needs to be outted and destroyed is the idea that tax cuts increase government revenue.  Even the CBO doesn’t believe this, yet it constantly stated in the MSM and is never questioned.  I practically scream at the TV for a reporter to actually point out the CBO’s own studies that show this rather than letting McCain or Romney just say that and have no challenge.  They always begin their sentences with “Well, the fact of the matter is…” which to me code language for “what I am about to say is total bullsh*t.”

  8. 8
    Ron Chusid says:

    The unquestioning repetition in the media is ridiculous. Maybe one of the worst examples recently was in the debate where Obama was asked about raising the capital gains tax, and the question was framed as if it was true that raising the capital gains tax results in decreased tax revenue.

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