Saturday, October 18, 2008

What's In a Name? The "S" word again.

It was inevitable.  The "tax and spend" message the Republicans trot out every four years wasn't working too well.  Now, they have upped the ante and have from McCain's own lips, we have the implication that Barack Obama's policies are socialistic.  McCain supporters have even gone so far as to call Senator Obama himself a socialist.  I suspect many of them don't even know what a socialist is.  But, that's another story.

Contrary to what some believe the United States was not set up to be a pure direct democracy (we are rather a republic with a representative democracy.  Nor was the United States set up to be a pure capitalistic society.  While there are those who seem to worship at the altar of capitalism, the United States has always realized that there is a role of government to play in protecting the weak and making sure the playing field is level.  The founding fathers argued about how big a role government should play but, they agreed that they wanted to make the United States a land of opportunity for all and that sometimes government intervention would be required to keep the market fair and to correct market forces when they (inevitably) run amok.  If those who call Senator Obama a socialist would read Chapter 5 titled "Opportunity" in his book "The Audacity of Hope" they would (assuming they didn't believe he was covering for his hidden socialistic beliefs) come to realize that he is not a socialist.  He talks about the role of government, the thoughts of Lincoln, Jefferson, Hamilton and others, the history since the New Deal, why conservatism became so prominent during the Reagan era and what we need to do to meet today's challenges.  He fully recognizes that there are times when the government is called for and there are times when the private sector can do a much more efficient job. 

If capitalism and socialism are endpoints on a continuum, the United States falls somewhere along that continuum.  While socialism has become a dirty word, the fact is that we are not society that believes that free market forces should be allowed to run with no constraint  nor are we a society that believes "only the strong survive".  We help the weak and the disadvantaged.  It's part of the fabric of our country.

John McCain's recent ads make the claim that Obama's tax plan amounts to  "welfare"  (another dirty word).  The claim is based on an Oct. 13 editorial in the Wall Street Journal (owned by Rupert Murdoch- need I say more?), about refundable tax credits. Senator Obama proposes to grant a number of refundable tax credits to low- and middle-income workers.  By the way, you should know these types of tax credits are not anything new.  The Earned Income Tax Credit has been in place since1975.  Obama is simply proposing additional tax credits for low income families.   For example, he would give a $500 tax credit ($1,000 for a couple) for workers, which would phase out for single workers making $75,000 or for couples making $150,000 per year. The Journal editorial says: "You can receive these checks even if you have no income-tax liability." That part is true. Whether or not that makes them "welfare" is a matter of interpretation. As the Journal editorial also says in its headline, "It depends on what the meaning of 'tax cut' is."

OK.  So, you want to call a refundable tax credit welfare?  That's your right.  Here's the thing though.  Here is the hypocrisy in McCain's ads. McCain himself is proposing refundable tax credits of up to $2,500 a year for individuals, or $5,000 for families, as part of his health care plan.  That's right. The exact type of tax credit that Obama is proposing.  McCain doesn't call his credits a "tax cut" but he doesn't call them "welfare" either. He does call it tax "reform," right there on his own Web site:
McCain Web site: John McCain Will Reform The Tax Code . . . [E]very family will receive a direct refundable tax credit - effectively cash - of $2,500 for individuals and $5,000 for families to offset the cost of insurance.
McCain makes his tax credit refundable to make it worth just as much to low-income workers as to high-income workers. If a tax credit were not refundable, it would be worth nothing to anyone who makes too little to pay any federal income taxes. A non-refundable credit would be worth the full amount only to those who owe at least $2,500 in federal income taxes, or couples who owe at least $5,000. Obama and McCain both make their tax credits refundable for the same reason – so they will benefit workers who earn too little to pay federal income tax.
The Wall Street Journal editorial goes further by misstating a fact and insulting families who do not make enough money to pay federal income tax.  They call those people "nontaxpayers".  To call a working person a "nontaxpayer" is both a lie and an insult.

Wall Street Journal editorial, Oct. 13: [Refundable credits] are an income transfer – a federal check – from taxpayers to nontaxpayers. Once upon a time we called this "welfare." ... Mr. Obama's genius is to call it a tax cut.
Anyone working pays federal taxes.  Payroll taxes for social security and medicare amount to 7.65% of every dollar earned for anyone making less than $102,000/year.  Everyone pays federal excise taxes whenever they buy gasoline or pay a telephone bill.  The proposed tax credits by both Senator McCain and Senator Obama are in effect tax cuts, tax rebates or tax credits, whatever you want to call them.  But, they are not welfare.  Just because a family might get back more on their 1040 than they paid in income tax does not mean that they are getting back more than they paid in, when you consider all of their federal taxes.  

John McCain has not proposed that we radically altar the progressive income tax code.  Both Obama and McCain are basically leaving the income tax structure the same.   So, if you think that making the rich pay a higher rates than the poor is socialistic, you have to call his plan socialistic, too. His critics are calling Obama's tax plan socialistic because he proposes raising the marginal rates on those making more than $250,000/year.  As I pointed out in an earlier post, Obama's plan only bumps the rates on the top wage earners a little to rates that are a long, long way from historic highs or even historic norms.  To call his plan socialistic because he is calling for a reduction in the cuts the very rich have enjoyed in recent times (or calling for a slight increase, depending on how you look at it) means we have had a much more socialistic tax code in the past because the rich have paid much higher rates before.  

It's silly season and it's going to get sillier in the next couple of weeks. Let's not be fooled again.  Stay informed.  



kc bob said...

I really wish that neither candidate would promise tax cuts Brian. We are in debt to the tune of 10 trillion dollars and have a 1/2 trillion dollar budget shortfall.. and both of these guys just added another 700 billion to boot.

Senator Obama hinted at the end of the last debate that we needed to face these tough times and sacrifice.. I hope that we get to that place of shared responsibility that will lead us to shared hope.

Brian said...


I agree with you. I'm no economist. But, I don't see how cutting taxes when you're already running a deficit makes sense. I guess the wisdom is that by giving people money back, they will spend it, get the economy moving and the government's revenues rise with the increased activity.

I'd like someone to really be a "straight talker" and admit we are going to have to sacrifice. We (the government and the people) have spent irresponsibly for the last several years and there's a debt to be paid. I just don't want to see an unfair amount of that debt laid on the people who can least afford it. Not only is it unfair, it's bad for our economy as a whole. The "ownership society" sometimes seems to forget you have to have a middle class with money to buy your products and services to keep the whole thing afloat.