Taxes: Playing small ball (very small ball)

Boiled down to its essence, Senator Obama’s complicated tax plan reduces to the  redistribution of over $100 billion in income each year by taking an average of about $20,000 in additional annual income taxes from about 5 million people, and redistributing the loot to 200 million others — about $500  per person in annual refundable tax credits.

Momentarily tabling the philosophical aspects of the redistribution plan,  I have a practical question: is the pain worth the gain?

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A noticeable difference ?

The $500 may give some psychological reassurance that Uncle Sam cares, but will it materially change anybody’s life or lifestyle?

The simple arithmetic: $500 works out to be less than $10 per week, a little over $1 per day, and about 25 cents per hour worked for a  full-time worker.  Hardly a life- or game-changer.

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95% get tax relief.  Really ?

Obama says that 95% of voters will get tax relief under his program.

Huh? Right now, 40% of adults have zero tax liability or qualify for a refundable credit (i.e. a negative income tax).  Since these folks aren’t paying income taxes now, they certainly aren’t getting income tax relief.

So, they must be getting payroll tax relief — an offset to their Social Security and Medicare contributions — in effect, making the first $6,500 of wages payroll tax free.  (Note: employers would still have to pay their 7.65% on those wages)

But, about about half of the 40% who don’t pay income taxes have no reportable income.  For these folks, there’s either no tax relief at all and Obama’s claim is overstated.  Or, their refundable tax credit will be even less than the $1 per day.

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Or is it 25 cents per day ?

Reports indicate that the majority or recent Economic Stimulus payments were used to pay off consumers’ debts.  That’s legit, but what’s the impact? 

Well, assuming that the money  paid down a high interest credit card balance, paying off $500 would save about $100 per year in interest charges —  adding about 25 cents per day to the spending pot.  Not exactly a game-changer.

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Bottom line: Obama’s income redistribution scheme may be well intended.  But, it sure doesn’t seem (to me) like the pain is worth the gain.

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