Progessive Tax and the Obama Plan

In harmony with my last post, I thought I would take a moment to briefly outline the wonders of what is the President Elect's tax plan. This artwork helps to shed some illustrative light on the redistributive brilliance of the Obama plan.

Tax policy functions as one of the most fundamental dividing lines between political parties in the United States. The argument extends far beyond the simple notion of higher or lower taxes, but rather the argument is concerned with the question of who should bare the greater burden. Under the current law in the United States personal income tax is levied on a progressive basis. That is, individuals are placed in "tax brackets" according to their respective income and are taxed a base amount plus a specified percentage on earnings beyond a predetermined income level.

In 2001 and 2003 President George W. Bush enacted what are now popularly known as the Bush Tax Cuts. These tax cuts were a temporary reduction and reconstruction (set to expire in 2010) of the then current tax percentiles and brackets. According to the Bush Tax Cuts, depending on one's income, an individual would be taxed a base amount plus an additional 10%, 15%, 25%, 28%, 33%, or 35% on earnings beyond a specified income level.

Mr. Obama's proposed income tax plan would allow for the continuance of the Bush Tax Cuts for the 10, 15, 25, and 28 percent income tax rates. He would restore the 36 and 39.6 percent rates imposed on the highest income taxpayers. Because of the return to previous tax percentiles in the top two brackets prior to the predetermined expiration date of the Bush Tax Cuts, the effects of Mr. Obama's plan would make our tax system signifcantly more redistributive. In 2009, Mr. Obama's plan would result in a 0.6 percent tax cut across all Americans--this amounts to $331 per year per capita in tax cuts.

Now here is the kicker, households in the bottom quintile of the cash income distribution (the 20 percent of the population with the lowest incomes) would receive an average tax cut of 5.5 percent of income ($567) and those in the middle fifth of the income distribution would receive an average cut equal to 2.6 percent of income ($1,118). In contrast, taxes would rise by an average of 1.5 percent of income ($3,017) for households in the top quintile. And the increases would be even more dramatic within the top quintile. Taxpayers in the top 1 percent would see their taxes rise by an average of 7.0 percent of income or about $94,000. The top 0.1 percent—the richest 1 in 1,000—would face an average tax increase of nearly $550,000, or 8.9 percent of income. (Tax Policy Center)

Now, the main question you have to ask yourself is this: Will this extra $567 per year ($47.50/month) have any significant effect on the standard of living for Americans in the bottom quintile? Liberals talk of lifting those in need out of poverty, but is $50 a month really the best they can do? And of course, never mind that this $50 dollars a month for the bottom quintile comes at the expense of $7,833.33-$45,833.33 a month for those making the most money in our country.

Does this seem right or efficient at all to you? I could be wrong, but I think the answer to eliminating poverty in our country extends a smidgeon beyond giving a poor person $50 a month and hoping they will overcome the problems that beset them. What advocates of progressive tax structure have failed to consider is that challenges of poverty cannot be overcome by mechanically handing someone an extra $50 a month. The need of those living in poverty extends far deeper than what monetary solutions are capable of offering. Poverty can not be faught with dollars only, but rather it requires the use of much sharper and potent weapons such as education reform and strengthened families, it requires that we strengthen the individual rather than beef up our government. Curiously however, there are still those who are determined that the best solution is to take from the rich and give to the poor. Fortunately for Obama, Robin Hood died a long time ago.