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Republican Tax Scares

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Guest post by Ron Chusid

Republicans try to win elections by using fear. Fear of terrorism has been their major act for the past several years, and before that they used fear of Communism. If that’s not enough, they’ll scare voters by saying Democrats will take way their guns or bibles. Then there’s their old routine of saying Democrats will take away all your money, which basically circles back to using fear of Communism. This year we’ve already seen a number of erroneous comments from John McCain and other Republicans about Barack Obama’s tax plans. Fortunately they are being debunked from a variety of sources.

Yesterday The Entrepreneurial Agenda, a blog at Inc.com, looked at accusations that Obama would harm small business by raising taxes. McCain’s argument is that, “Small businesses are the job engine of America, and I will make it easier for them to grow and create more jobs….If you are one of the 23 million small business owners in America who files as an individual rate payer, Senator Obama is going to raise your tax rates.” The Agenda responds:

Well, McCain is certainly, unequivocally wrong that Obama will raise taxes on 23 million small businesses. Let’s begin by establishing the figures. According to Census Department (as reported by SBA), in 2005 there were some 26 million firms with 500 or fewer employees. (McCain’s figures apparently come from 2002.) Of these, 20 million have no employees at all. Many of these are glorified hobbies, others are lucrative consulting gigs, but as the nonpartisan Factcheck.org points out in a thorough debunking, “McCain is arguing that Obama’s tax increase would ‘destroy jobs,’ but he’s counting mostly firms that don’t produce any.”

Obama has promised to repeal the Bush tax cuts on couples making more than $250,000 and individuals earning over $200,000 — basically, all of the top tax bracket and reaching halfway down the second-highest tax bracket. And how many small businesses would that affect? The Tax Policy Center calculates the number of tax filers (”units,” it calls them) in each bracket who reported some small business income or loss, and in 2007 that amounted to just 481,000 units — just 1.4 percent of all those who reported small business income. (The Tax Policy Calculates that 32 million tax units had small business income, which includes straight business or farm income, or income passed from partnerships or S-Corps.) And that number is undoubtedly high, because many filers in the second highest (33 percent) tax bracket earned less than Obama’s proposed threshold. Others are professionals — lawyers or accountants, say — who’ve organized their practices into partnerships. In any case, the vast majority — around 99 percent — of small businesses, however you define them, would not see their taxes increased under Barack Obama’s scheme.

A more interesting question is whether small businesses would actually see a bigger tax cut under Obama or McCain. Again, if the number-crunchers at the Tax Policy Center is to be trusted, then the laurels go to Obama, who’s proposing a variety of additional tax cuts targeted toward low-income and working families. (Here is the analysis, which includes very detailed descriptions of the candidates’ proposals. More detailed, in fact, than the candidates’ own position papers. Because the candidates haven’t fully fleshed out their tax proposals publicly, the Center has talked informally with campaign advisers and made its own assumptions to fill in the blanks.) Anyone earning under $112,000 in 2009 — or 80 percent of the population — is more likely to see a higher after-tax income under Obama than under McCain.

The post refers to this post at factcheck.org which debunks McCain’s charges on taxes on small business. This isn’t the only time that factcheck.org has debunked false claims on Obama’s tax plans recently. They debunked a claim that Obama “voted to raise income taxes on individuals who earn as little as $32,000 per year.” They concluded that McCain’s $32,000 figure is “phony.” That is only one of many false claims on Obama’s record made by Republicans. Factcheck.org also debunked a claim from the McCain campaign and the Republican National Committee that Obama voted for higher taxes 94 times.

The report of the Tax Policy Center provides other important information which I previously discussed here. While us affluent wine drinking elitists who back Obama might wind up paying more in taxes under Obama than McCain, it is worthwhile to look at how much more this will be to determine if it is really worth compromising principles and voting Republican to save a few bucks. In my previous post, which provides more details and links for those who want to review the numbers, I quoted from Hilzoy who noted:

people below the top five percent (which starts at $237,040) do not lose after-tax income under Obama’s plan, and people making $237,040-$619,561 lose all of $12 a year, on average. It’s only in the top one percent that people take a sizable hit. But since so much of the Bush tax cuts went to them, that seems fair to me.

Rather than paying higher taxes under Obama the difference is that most affluent Obama supporters will see  a smaller tax cut than they would receive from McCain while the more affluent will see a small tax increase which we can easily afford. It isn’t until the top one tenth of one percent where there is a major difference. The top 0.1% receives an average tax cut of $269,364 from McCain while they would see an average tax increase of $701,885 under Obama. Again, this is largely a consequence of them receiving the largest benefits under Bush’s plan.  On the other end of the spectrum, McCain would give the lowest quintile an average tax cut of $19 while Obama would give them an average tax cut of $567.

Obama described his own tax policies in a video I posted here. In the video Obama makes it clear that those earning under $250,000 will not receive an increase in taxes–not in their income tax, not in Social Security payroll taxes, and not in capital gains taxes. The vast majority will receive a tax cut.

Another false claim being spread is seen in a recent column by David Brooks which claims “If Obama’s tax plans go through, those affluent donors could wind up giving over 50 percent of their income to the federal government.” I responded in this post, noting that even those affluent Obama donors making over $250,000 would still wind up paying at a tax rate well below 50%. The exact amount is not known as Obama has not stated an exact amount by which he would increase Social Security taxes on those making over $250,000.

These numbers are all based upon the campaign statements of the candidates. It would be fair to question if things will really turn out as the candidates now claim. One sad fact of politics is that all politicians tend to promise more than they deliver, and the plans of none of the candidates add up, as I recently discussed here. It would cost more than we are likely to raise in tax revenues to pay for everything Obama has promised. The same was true of Hillary Clinton.

The flip side is the tax cuts promised by McCain are not covered by sufficient spending cuts and will result in an even larger increase in the deficit than the programs promised by the Democratic candidates. Earlier in the year  I noted that The Washington Post found “While both Democratic candidates would spend far more on new programs than Mr. McCain would, the Republican’s proposals for new tax cuts dwarf the Democrats’ plans.” Once reality hits them after taking office, It is likely that the tax cuts promised by Obama might not be as large as currently claimed, but those promised by McCain will turn out to be much smaller, even before we need to figure out how to pay for all those wars he might want to start.

Cross posted from Liberal Values

Comments

  • MsJoanne

    says:

    McCain, wrong? I’m shocked. Shocked, I say!

    I don’t think they are as much McCain’s charges as they are out and out lies.

    My fear is that since McCain bankrupted his own campaign (how many times now?), how will THAT translate to our economy? To me, McCain represents the possible total implosion of the US economy. He’s stubborn and arrogant, just like Bush, and we have seen what Bush has given us.

    McCain, to me, would be worse.

    I fear enough for the economy surviving as it is. McCain would doom us.

  • TCG

    says:

    Ya fear is cool with those people.

    Bullshit sells, too. The tax stuff, in general and specifically as applied to the small biz is just plain BS. The estate tax kills everyone. Taxing Dividends is immoral.

    And keep people off balance with fear.

  • maya

    says:

    It would be an interesting exercise to compare how the two candidates tax plans would affect, oh say, Cindy McCain’s taxes since she files separately.

  • Michael W

    says:

    This is something I now have a vested interest, since I am newly self-employed. I moved cross country, and my company was “gracious” enough to let me keep my job as a contract employee and work remotely. Now I have to estimate quarterly taxes, pay ALL of my own health insurance ($450/mo), track expenses and put out bi-weekly invoices. And keep track of it all so I can report it to the IRS. I won’t even come close to breaking six digits on income, let alone profit.

    I’d trust Obama’s tax plan much farther than I could spit out McCain’s.

    Just sayin’.

  • ResumeMan

    says:

    Michael W

    Make sure that you come up with the best estimate that you can of what percent of your income you will owe in taxes, and religiously put that fraction of each and every check into a savings account that you know you won’t touch. That’ll make the tax-paying part of things a whole lot less painful.

  • Aaron

    says:

    “…which we could easily afford” – shouldn’t each individual have the right to determine what they choose to afford? If you have enough spare money laying around to support all of these socialist programs, why don’t you donate it voluntarily to a private charity, who will use it infinitely more efficiently to help the poor and downtrodden than any government program? What really gets me is that all of the wealthy liberals could easily band together and put their own money up privately and more than fund all of the welfare-type projects they can. Instead they generally use the same tax shelters as the greediest conservatives. In fact, Republicans give far more to private charities than Democrats. I think it’s time to start choosing to put your money where your mouth is.

  • Michael W

    says:

    Thanks, ResumeMan (#5). I’m already on it. I’m still trying to decipher the IRS forms, but if I’m reading them right, after health insurance, out of pocket expenses for office supplies and the like, a percentage of the new house for my office space, relocation expenses (which are, after all, business related at this point), percentage of utilities, and regular things like state taxes and mortgage & insurance, I should come close to breaking even, at least for the first year or two.

    I used to be an accountant, but I’m having a very difficult time deciphering the latest IRS tax codes.

    And they [the IRS] wonder why most people think it’s just a scam to get their [the common people] hard earned money.

  • BuzzMon

    says:

    Aaron – if you want people to take you seriously, please try to stay in the real world. In the real world, pure systems don’t work. So when you say “socialist” you reveal yourself to be either naive or a liar.
    We operate in whats called a “mixed system” – mostly capitalism, some socialism. These are the only systems that work in the real world.
    Remember that we are nibbling around the edges here.
    Please also remember that the free market gave us both the Roaring Twenties, and the Great Depression.

  • Bones

    says:

    Of course, if you’ve lost your job, and then your house, taxes would be the least of your worries ….

  • BuzzMon

    says:

    Continued (had to get the sleep over boys to bed)

    Let’s compare our (the U.S.) current situation to a close neighbor – Mexico. why are we pretty much OK, while Mexico has a 25% unemployment rate and a 50% poverty rate? A lot of credit goes to the ultimate power in Socialism, the Rule of Law.
    Pure Capitalism is predatory, and the rich families in Mexico are free to twist the political system to whatever shape they want. No Rule of Law, no labor rights, no (socialist) public safety net, not benefit to ordinary people, all the money goes to the rich.
    Now, how does “each individual have the right to determine what they choose to afford” when you have next to nothing?

    Our current resident in the White House has been supported by the “Conservatives,” but just about all of thier policies have been disasters. IMHO, this (the most influential part of the Republican Party) would prefer a Mexican situation here in the States. I feel that their policies have been driving us toward that goal.

    Is that what you want? Because by not standing against them, that’s what you are supporting.

  • goatchowder

    says:

    The single biggest boon to small business and self-employed people would be nationalized single-payer health care.

    Do any of you own a business? Have you any fucking idea how the medical insurance companies eat you alive?

    Small businesses would thrive with single-payer medical insurance. No need to worry about yourself, your family, or your employees.

    Go ahead, quit that corporate job, and start your own business. Oh wait, can’t, need the medical insurance bennies! Single-payer could kick off a huge burst of entrepreneurial activity and independent business innovation, as corporate peons start telling their bosses to take this goddamned job and shove it.

    And the corporations can’t have that. They need those indentured servants with the spouse and 3 kids to cover.

  • azportsider

    says:

    Ron,

    the GOPers use fear tactics for two reasons, as I see it. First, they themselves are fear-driven people. They’re afraid of absolutely everything and everyone who isn’t exactly like themselves. If you probe deeply enough into any conservative position on any issue you care to name you’ll find the mindless, unreasoning terror at the root of it. They use fear tactics because they know that such tactics work on them. What they don’t understand is that, while all of us have various fears that can be exploited briefly for political gain, cooler heads will eventually pop up and start asking questions.

    They also use fear tactics in election campaigns because they know they haven’t got a prayer on the issues. If the American sheeple ever actually learned what the GOPer agenda really is, the GOPers would never manage to keep a race close enough to steal it without a lot of inconvenient questions being asked, much less win an election outright.

  • SteveT

    says:

    Michael W said:
    I’m still trying to decipher the IRS forms, but if I’m reading them right … I should come close to breaking even, at least for the first year or two.

    I used to be an accountant, but I’m having a very difficult time deciphering the latest IRS tax codes.

    Congratulations on breaking even so soon.

    The most important thing about being self-employed is that your time is your most important business resource, so guard it zealously. It’s usually cheaper to pay a professional to do something than to waste your time doing it. Remember, if you’re doing anything else. you aren’t earning money.

    I asked around and found a terrific tax preparer. Once I have my books up to date the entire process of filing state and federal forms takes about an hour. And my tax preparer usually finds deductions that save me a couple hundred dollars above her fee.

  • Dennis-SGMM

    says:

    goatchowder said:
    …Single-payer could kick off a huge burst of entrepreneurial activity and independent business innovation, as corporate peons start telling their bosses to take this goddamned job and shove it…

    Bingo! Possibly the primary reason why Republicans oppose single payer. I’d bet anyone a good lunch that if single payer was enacted the R’s would then militate for a massive expansion of the H1B visa program to ensure a supply of low-wage serfs.

  • Wayne

    says:

    I have had a small business for 30 yrs. and have never paid corporate taxes. If I did it would have been evidence of poor planning on my part. All profits flow to the employees. If they didn’t, I’d be paying double taxes on the money, first as profit to the business and second as payroll to the employee. So they can tax or untax corp. profits and it won’t affect my business.

    goatchowder is absolutely correct. Health insurance eats small businesses for lunch, especially here in South Florida. After payroll (I’m a service business), it is my biggest monthly cost. My health rates effectively bring down the rates given the big corps or government plans. I encourage my employees to sign up on their spouses plan if its less expensive or a nice government plan and I contibute to that.

    I would love to have my taxes raised because of Obamas plan, but I’m nowhere close to that level. My father was in the 50%+ bracket in the late 60’s. Didn’t like it much but never really complained. He knew the more taxes you paid the more you made and moved on from there.

  • neil wilson

    says:

    I am not familiar with Obama’s tax plan but if he intends to raise the limit of social security then a self employed person could easily have 50% of his income going to taxes.

    Please don’t quibble with the difference between a social security tax and an income tax. The ‘publicans play that game to show how little ‘income’ tax lower middle class people pay. Social Security is a tax on income even if it might not be an ‘income tax’.

    In any event, there are some people who already pay over 50% on marginal income. Our tax code has these stupid phaseouts on exemptions and deductions where a large family can have their marginal tax rate go up by 10% or more. So, it would be no trouble for a rich family to have the lower earning spouse earn less than the maximum on social security and pay well over 50% on the spouses income.

  • blooming pol

    says:

    In NH the entire Republican platform is about taxes. We have to cut them. Period. We had a new state rep candidate in our special election last January who had moved up from MA (you always hear that these are the liberals who are taking over NH, but actually most of them vote Republican – but people who move here from other states are more likely to be Democrats). Rumor has it his wife was appalled when she got the property bill for their new house here. They had moved here, she said, because they heard NH had no taxes. Someone forgot to tell them that we have no income and sales tax but our property taxes and small business taxes are paying for what income taxes (which would be the fairest) could. Harks back to the days when your income came from your land, so it was an income tax then. Now it kills us, especially the school tax bill.
    He lost, by the way, but coming back for the fall election this year.

  • John Barleycorn

    says:

    I know a republicon small business owner that hasn’t paid taxes in over 10 years and neither has his employees . I’m going to turn him into the IRS . This is war .

  • SteveT

    says:

    John Barleycorn said:
    I know a republicon small business owner that hasn’t paid taxes in over 10 years and neither has his employees . I’m going to turn him into the IRS . This is war .

    I keep in mind how the government finally brought down Al Capone. I’m always honest about reporting income and expenses.

  • RonChusid

    says:

    Aaron

    shouldn’t each individual have the right to determine what they choose to afford

    Yes, everyone should determine that by voting–based upon accurate data as opposed to by false information being spread by conservatives. As someone who is at risk of paying higher taxes under Obama as opposed to McCain I was interested when the Tax Policy Center came up with detailed information so I could make an informed choice. Finding that I’m pay such a trivial amount more under Obama’s plan as opposed to McCain’s plan makes it absurd to consider voting for McCain.

    As others pointed out, your claim of socialist programs is nonsense. As the amount of money taken from me in taxes is essentially equal from both I’d rather have the money spent on a government as Obama envisions than McCain. If you think McCain’s ideas are so great, why don’t all you Republicans skip the middle man and just sent your money to people in the top one tenth of one-percent in income and on staying in Iraq for one hundred years (assuming he flip-flops away from the position he’s taking today)? Republicans have been the ones who have done far more to tax people while imposing their views upon others.

  • RonChusid

    says:

    neil wilson,

    Obama specifically included income tax and Social Security taxes in his calculations. The numbers remain under 50% despite all the false claims being spread by Republicans.

  • RonChusid

    says:

    Regarding the comments on being self-employed, I am also self-employed. Steve T is right in saying “It’s usually cheaper to pay a professional to do something than to waste your time doing it.” I wouldn’t dream of handling all that government paperwork and instead I pay an accounting firm to handle it.

    If I was a small minded Republican, I could use that paragraph above to argue that government is all bad–ignoring all the functions of government which are necessary to have a successful business climate.

    Health insurance is certainly a huge problem. Individual policies are extremely expensive to cover myself and family. I went for years without coverage for employees, which puts any business at a disadvantage in hiring, especially when competing with larger outfits which receive far better group rates. I wound up offering the employees health insurance coverage only after a county program was set up to assist small businesses with an affordable plan. I wonder how many Republican small business owners are now using this plan without realizing the contradiction between using a health plan where government is involved and voting for the Republicans because they oppose “socialized medicine.”

  • toowearyforoutrage

    says:

    So McCain will make the deficits even higher.

    As long as we’re only taxing our grandkids by putting trillion dollar wars on plastic, McCain still has.a plan that appeals to short-sighted voters which has been good for 50%-1 twice so far.

  • lynndee

    says:

    I wish the politicians, whether democrat or republicans, would learn to live on the money they are given——-just like the rest of us have to.

    But no, they run up a debt and then just dig deeper into our pockets.

    Re: the tax cuts for the rich babble: be aware rich begins at $50,000. that is when you start loosing credits, deductions, etc. Far from the “richest of the rich” that we always hear mostly democrats whining about.

    It is so easy to always blame the president for taxes. But–there are 535 people that vote for or against them.