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Obama's Tax Plan Rewards Everything Except Success

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The Tampa Tribune

Published: October 26, 2008

Sen. Barack Obama proposes a long list of tax gifts to help you to go to college, get a job, send your child to day care, buy a house and save for retirement. And after you retire he wants you to stop paying taxes.

According to Obama's math, he wants to give something to 95 percent of us.

What could possibly go wrong, beyond the sheer cost of it all? Plenty.

Most of Obama's ideas aren't new. They're just bigger and their size makes them worth a closer look.

His opportunity tax credit is something like the Hope Scholarship. Obama's idea is to repay the first $4,000 of anyone's college expenses. One hundred hours of community service will be required to get the new credit, which will make community service pay more than most real jobs - $40 an hour.

If so much money is made available for tuition, we should expect tuition to increase, especially for state universities already subsidized by taxpayers.

To help people save for retirement, Obama wants the government to match half of the first $1,000 a worker saves each year. He would require employers to create a direct-deposit retirement account for each worker to make savings easier. The matching money would go only to families earning less than $75,000.

Lower-income workers already get a savings credit, but it is subtracted from taxes owed. Even those whose tax bills are zero can qualify for Obama's payment. The incentive will help make work pay, Obama says. But at the point the credit phases out, getting ahead will pay less.

Another part of his "make work pay" concept is to give lower-income workers up to $500 to offset the 6.2 percent payroll taxes they pay into Social Security. The tax loss wouldn't be subtracted from Social Security revenue because, his campaign explains, workers making over $250,000 will be charged additional payroll taxes to make up the difference.

It's unclear what the new fee would be or what types of income would be taxed. The campaign has hinted at a rate of from 2 to 4 percent, and it might apply to investments as well as earned income.

The downside of creating a new tax on the wealthy and, in effect, refunding a big part of the payroll tax for low-wage and part-time workers, is that it changes the philosophy of Social Security. Broad support for the pay-as-you go program will be undermined.

Obama would make Social Security more like a welfare program financed disproportionately by the rich. Low-income workers for the first time would be getting something for almost nothing. And upscale workers would for the first time be paying a lot more for nothing extra.

Obama's approach to Social Security is polarizing, as is his lifetime tax holiday for seniors. He wants older Americans with incomes less than $50,000 to cease being taxpayers.

Obama can't explain why folks should outgrow taxes, especially those whose homes are paid for, who have no children to support, who get Medicare and Social Security, and who may have significant tax-sheltered retirement savings.

Instead of explaining the logic of each idea, he wins support by offering something to almost everyone. For younger families, he proposes a refundable credit for child care of up to 50 percent of its cost.

For lower-income, working families buying a home, Obama proposes a new refund of 10 percent of the mortgage interest, up to $800. It would be one more break for homeowners at the expense of renters. And if you lose your job, the effect would seem to be to lose your income-linked homebuyers' break.

Congress is likely to make big changes in Obama's flawed plans or not pass them at all. But if he is elected and succeeds in giving taxpayers his entire package of change, some low-wage jobs would pay more and hiring and investing would pay less.

That means fewer jobs and less growth. The economy is likely to rebound no matter who is elected, but elections do matter. Increasing the tax on success will have a price.

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