Obama’s 95% Illusion

One of the things that has bothered me, since at least the first presidential debate of this campaign, is Obama’s outright Orwellian use of the term “tax cut”. The Wall Street Journal now debunks the illusion:

It’s a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he’s also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of “tax cut.”

For the Obama Democrats, a tax cut is no longer letting you keep more of what you earn. In their lexicon, a tax cut includes tens of billions of dollars in government handouts that are disguised by the phrase “tax credit.” Mr. Obama is proposing to create or expand no fewer than seven such credits for individuals:

  • A $500 tax credit ($1,000 a couple) to “make work pay” that phases out at income of $75,000 for individuals and $150,000 per couple.
  • A $4,000 tax credit for college tuition.
  • A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).
  • A “savings” tax credit of 50% up to $1,000.
  • An expansion of the earned-income tax credit that would allow single workers to receive as much as $555 a year, up from $175 now, and give these workers up to $1,110 if they are paying child support.
  • A child care credit of 50% up to $6,000 of expenses a year.
  • A “clean car” tax credit of up to $7,000 on the purchase of certain vehicles.

Here’s the political catch. All but the clean car credit would be “refundable,” which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer — a federal check — from taxpayers to nontaxpayers. Once upon a time we called this “welfare,” or in George McGovern’s 1972 campaign a “Demogrant.” Mr. Obama’s genius is to call it a tax cut.

The word “socialist” has, since the fall of Union of Soviet Socialist Republics, lost its force as a political charge. People don’t feel threatened by “socialism” the way they did by “fascism”. That is simply too sanguine.

I don’t doubt that most voters will read through that list of what counts as “tax credits” and say to themselves, “I fit in there, I’m a good person, and by golly, in this economy, I can use all the help I can get.” But ask yourselves, “Where is this money coming from?”

I myself have been the recipient of unemployment benefits, and though I enjoyed not having to work for a while and getting money nonetheless, I always felt guilty about it. Not enough to get a job until the money flow ran dry; and that is the point. When there is “free” money, people become lazy. Further, the money Obama is promising to “95% of tax payers” is not “free”; it is gotten by increasing taxes on “the wealthy”.

Put in other words, this is nothing more than a blatant attempt to use government forcefully to redistribute wealth. It might not seem forceful right now because it does not happen at the tip of a gun, but rest assured that that is exactly what it is: coerced charity.

One reason why “socialism” has never gotten the same bad rap that “fascism” had is that people feel warm when they think about the purported intentions of socialists, which is to better the lives of the everyman. How callous must one seem who argues against providing for the everyman!

But that assumes that government is the only instrument by which we can take care of the less fortunate. To be sure, government often has incomparable scale, such that it can theoretically purchase for less due to greater bulk (but those who have supplied government contracts know that this is more the exception than the norm), and provide the logistical support to boot (although that didn’t seem to work real well during Katrina). Nevertheless, government, particularly a distant federal government of a nation that covers a third of a continent and a third of a billion people, has a tendency to lose touch. Further, to inure itself against lawsuits and charges of unfairness (in essence, to cover its own ass), it requires much more bureaucracy and red tape that eventually begins to undermine the gains from its scale. With such remove, is it any wonder that government often ends up helping opportunists and rejecting those in real need of help?

Contrast this with private charities. A private charity may not have the same scale as government (except perhaps for the Roman Catholic Church). However, private charities tend to be more involved in the lives of those getting their help; this is particularly true of religious charities, because of the motivation to win converts, whether through direct proselytization or through serving as values models. Further, private charities must always work to raise money, and a primary form of persuasive argument is demonstrating the good work that they have done.

Government, on the other hand, need never raise money, as it can levy taxes directly (with the implied support of “lawful use of force”), or indirectly by siphoning funds from a general account. In addition, all that is necessary in order for government to commit itself to such action is enough votes in the legislature, or the action of the executive, all of which requires, essentially, a simple majority of votes of the voting public–and yet, once 50%+1 of votes are cast in favor of action, government suddenly has access to the funds raised from 100% of the taxpaying public, not all of whom are eligible voters.

Charity is best which comes from the heart, and worthless which is imposed by government with the implied threat of violent force. In modern America, a compromise has been found by providing loopholes in the tax code that provide incentive to the rich to give. Although resultant giving may be less altruistic, nevertheless it gives “the rich” a choice, so that in some sense that charity still can be said to come from heart.

When Obama promises to pay for these “refundable tax credits”, he increases the number of those who end up paying no taxes, he rewards others who have no income, he stratifies income bands (thus reducing income and social mobility), and he does it all by punishing those who best have means to leave this country and its tax burdens. Look beyond the stated intentions, and you will see that such socialist economics will do nothing but impoverish this country. Can we really afford that in this economy? Is it any answer to claim that because Obama did not cause this state of the economy, he is therefore the antidote?

I think not.

(Cross-posted from Between Worlds)

6 thoughts on “Obama’s 95% Illusion”

  1. The point of socialism isn’t to take care of people. The point of socialism is to make people economically dependent on the state and the political class that controls it.

    Every “benefit” that government grants comes with a loss of freedom. When you accept the states money, you accept restrictions on how to spend. If you don’t take the money, you place yourself at a disadvantage e.g. declining to accept money to go to a government approved school puts you tens of thousands dollars in the hole at the start of your adult life.

    Look, at the list. You only get most of funds if you do what the government wants you to do. My family only qualifies for the first “credit”. That means we’ll be paying for everyone else’s goodies.

    You’re welcome.

  2. > People don’t feel threatened by “socialism” the way they did by “fascism”.

    Mainly because Hollywood has utterly ignored the USSR as a basis for stories. You’ve seen all the horrors of the Nazis, time and time again — rarely does a year pass without a critically acclaimed picture which deals with the Holocaust in some way… and that’s a good thing.

    But the fact is, the USSR and China were each just as effective as the Nazis in wiping out their citizenry — and for much longer.

    The only movie with any distribution in recent memory which actually suggested anything about this is The Red Violin, which had a segment set during the “Cultural Revolution” — and I seem to remember that it touched it only peripherally (I don’t include The Killing Fields, which was Cambodia, not China or the USSR).

    There’ve been more movies made about supposed US “attrocities” in the last 15 years than there have about communist ones.

  3. The non-partisan Tax Foundation claims that both McCain’s and Obama’s plans are equivalent in terms of credits offered to non-tax-paying individuals under the Code, about 1/3 of the actual tax base according to 2006 numbers. See http://www.taxfoundation.org/files/ff146.pdf

    More importantly, differences between the plans aside, I fail to see the importance of criticizing tax *credits* while ignoring spending. Much political blathering from both parties aside, anyone who studies the Code learns pretty quickly that, considering the tax system as a whole, there is no difference between taxation and government spending. It just happens that overt taxes/credits are visible.

    Given that the majority of our current debt is not occasioned by lower taxes or tax credits, but by massive overspending (see, e.g, a massively ballooned military budget, the Iraq war etc.) shouldn’t we focus on cutting spending first? Also, tax credits help those below the poverty line. If we have to attack credits to low-income families, why not focus on special interest giveaways like agricultural and oil industry subsidies first?

  4. “..shouldn’t we focus on cutting spending first? …”

    That depends…I would argue that the Iraq war was very necessary as well as high military spending….whereas you may or may not. If we differ greatly on what is important, then there is no way we could possibly agree on what should get cut first.

    I would be in favor of nickel and dime-ing down every social program in the country and recuding waste there way before even looking at military spending.

  5. Correct me if I am wrong, but we give subsidies to oil companies in order to promote them to more actively seek out new sources of oil. Since with the process of finding and harvesting oil requires huge initial costs, costs that many times become sunk ones if the expected oil is not as plentiful/accessable, I learned in my economics classes that the government provided subsidies to the oil companies to help protect them from the somewhat staggering fixed costs associated with starting production on an oil field. So with that in mind, subsidies are very important to give to oil companies since it encourages them to find more oil, which in turn lowers the overall price of oil since the supply will increase as more is found. I know I know, now you say but look at oil prices and CEO profits yada yada.. if anyone is to blame for that, it is our government which blatantly and (I would honestly say after watching the squareoff between the 5 top oil compnaies and congress) proudly opposes the exploration of new places to drill for oil. Because the oil companies could not drill in areas they knew had oil, and their overall supply declined, but their demand increased (even just looking at America, we have an ever increasing demand for oil, and there’s the obvious rest of the world that needs oil too) so naturally they began to charge more because in a capitalistic society where it makes sense to charge what people are willing to pay, people do it. (if any of this seems glaringly fictitious please let me know, I would not want to purposely spread false or faulty information. Thank you)

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