Making Work Pay - The kind Senator from Illinois will institute a new tax credit of $500 per person/$1000 per 'working family'. The intent is to offset the FICA (social security tax) on the first $8,100 of income by eliminating income taxes. Obama claims this will eliminate the income tax for 10 million Americans. Obama would make the credit refundable if it resulted in a negative tax due.
The Junior Senator from Illinois has heard of the Earned Income Tax Credit, because he also plans to increase it. Here is what the IRS page says about the EITC:
The Earned Income Tax Credit (EITC) sometimes called the Earned Income Credit (EIC), is a refundable federal income tax credit for low-income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.Hmmm.... sounds a lot like the Obama Making Work Pay plan....
Except it is a lot larger... The EITC is little complicated (hey, it is part of the United States Tax Code) but currently the max is $428 for a single/married with no children; $2833 for single with one child, and $4716 for a single/married with two children. The EITC is on a sliding scale, the max is in the range of approx. $10K to $17.4K of income. It slides toward zero as the income moves toward zero or towards the cap AGI of $39,783 for the married/single with two children. So Obama's plan would add on a kicker...
The result of this is that the marginal tax rate on the lowest income earners will increase. That is, Obama will build into the tax code an incentive to not make more money. Don't take that second job.... if you do your income will go down not up.
Obama will create a whole new group of income non-earners to fill those open 'second jobs' by unemploying millions of tax preparers/accountants. You see Obama will have the IRS send you the completed the tax form, you just need to check their work then send it back. Of course, they can't get my birthday correct (two years in a row now) so they will be able to figure my taxes correctly... no problem there....
In case the low income earner/former tax preparers do not know what to do with their free time, Obama has that covered too... a $4K college tuition tax credit. That will add to your refund and, get this, is available prior to you actually enrolling in courses.
Of course while you are busy (not?) taking classes and working 20 hours a week, your children will need to be cared for. The kindly Senator from Illinois has thought of that too. He will increase the Child Care Tax credit from 35% of eligible expenses to 50% and make the credit... you already know the answer... REFUNDABLE.
So, a married couple with two children each adult working 20 hours a week at minimum wage and taking courses at the local college will make around... $13,000 per year gross (not counting Obama's plan to raise the minimum wage). They will have pay about $975 in FICA. Their income tax withholdings will be completely refunded, they will receive tax credits of $2000 for the child tax credit, $4716 for the EITC, $1000 for Making Work Pay, $8K for tuition credit, and 50% of their Child care expenses. An expected refund of $15,716 + half the day care bill.
Thus, these individuals will suffer a net loss of income from full employment unless they find a job that pays them an after tax net of nearly $30,000. Which means finding a job that pays at least $50K.
Yeah, that's gonna happen. So Obama will increase unemployment by reducing the number of people working multiple jobs to reach full employment and by eliminating millions of jobs in the tax preparation business.
Senator, you are not the change we seek.
Honestly, this blog would fully support setting tax preparers and IRS agents free to pursue other career options by, say, implementing a flat tax with no deductions and no tax credits. This a much simpler and more straight forward approach than Obama's nightmarish web of tax credits. Obama would make the tax form so complex that the working poor, who tend to be under-educated, will need someone else to fill out for them. A flat tax would completely eliminate the need for them to perform a calculation... just send in the year-end paystub showing you made less than bar (what ever number that is... most ideas peg it around $65K) and no tax is owed.
That would be a change you could believe in.... Too Bad Obama doesn't see it that way.
2 comments:
I really love your blog(this post). However, you don't state any sources for your facts. Where are you getting all of your information from..... especially the part about a $15,716 refund?
Thanks.
Thanks Anon... I appreciate the positive feedback.
The source for the Obama tax plans was a white paper on the economy posted at the Obama campaign website. This paper has since been removed, and it appears Obama's plans are in a state of change.
The tax information was taken from the IRS website. It has everything you need to understand the EITC.
The calculations in the post are my own based on my understanding of the tax code and the plans laid out in the Obama economic plan. The $15,716 is the sum (2K + $4716 + $1K + 8K) of the new credits assuming that people under 20K already have no tax liability, and they qualify for all of Obama's tax credits.
Post a Comment