- The Washington Times - Monday, November 3, 2008

ANALYSIS/OPINION:

ANALYSIS/OPINION:

OP-ED:

When Sen. Obama told “Joe the Plumber” that he was planning “to spread the wealth around,” he wasn’t kidding. My analysis showed that for many people under the Obama plan, there will be no taxes owed at all … not even for Social Security or Medicare. Moreover, these same people will also receive a check from those of us who do pay taxes. This is not a tax refund or tax credit by any definition. It is clearly welfare for working people.

We prepared two tax returns for a hypothetical family, Tony the Taxpayer and his wife, one using current law and the other using Mr. Obama’s tax proposal. Tony earns $23,000 a year. He puts $1,000 into a 401(k) retirement fund. His wife has a part-time job doing clerical work and she earns $12,000. They own a modest home with a monthly mortgage payment of $666. They have three children: an 18-year-old college freshman who has taken out a loan to pay her tuition; a 12- and a 10-year-old who are in an after-school program when Mom is working.

Under existing tax law, Tony pays no income tax (they do pay a total of $2,677 in Social Security and Medicare taxes) and receive a “refund” of $3,213. Not bad for Tony and Tilly. Even factoring in Social Security and Medicare, they still make off with $536 of “redistributed wealth.” Under Mr. Obama’s plan, Tony and Tilly really hit the mother lode: They pay no tax and get back $12,444. If you account for Social Security and Medicare taxes, their “net” take is $9,767.

Courtesy of Mr. Obama’s spread-the-wealth plan, Tony’s income has mushroomed from $35,000 to $43,843 tax free. Where does Tony’s financial bonanza come from? The (existing) child tax credit wipes out the tax of $560 that they would have owed; earned income credit estimated at $1,704; additional child-tax credit (existing) of $1,440; “Making Work Pay” credit (Mr. Obama) of $1,000; saver’s credit (Mr. Obama’s federal match) of $500; universal mortgage credit (Mr. Obama) of $800; child-care credit (Mr. Obama makes it refundable) of $3,000; and, finally, the American Opportunity tax credit (Mr. Obama’s plan to replace the Hope credit along with an obligation for public service) of $4,000. Add it all up and you’ve got a windfall of $12,444.

The source of most of the wealth to be redistributed is obviously the upper brackets. A quick look at how they fare under the Obama plan is considerably more confiscatory than the Obama campaign would have us believe.

Mr. Obama has promised that the Bush tax cuts remain intact for all but the top two brackets: 33 percent and 35 percent which will increase to 36 percent and 39.6 percent, respectively. But, there’s a lot more bad news in store for upper-income people. During the administration of Bush 41, the Democratic Congress, frantic for ways to increase taxes without taking the political hit for raising tax rates, hit upon a “back door” way of taking more money from upper incomes. It is, in fact, known as the “stealth tax.” PEP and PEASE limits reduced the amount that upper-income households or individuals could take in personal exemptions (PEP) and itemized deductions (PEASE). PEP and PEASE were reduced in 2001 at the recommendation of the non-partisan Joint Committee on Taxation. Mr. Obama proposes reverting back to the PEP and PEASE thresholds of the ‘90s.

The practical effect of this change: Taxpayers in the 28 percent bracket (which starts at $131,000, well below the promised $250,000 figure at which you are supposed to be safe from any increase) now pay 32 percent. Today’s 33 percent bracket, which goes to 35 percent under Obama rate increases, now goes to 40 percent marginal rate. Finally, the 35 percent bracket goes to 39.6 percent and then to 44 percent.

We’re not done yet with Joe, the (not-for-long) Rich Guy. We can’t forget Social Security taxes. Mr. Obama has changed his position at least three times on how he will increase Social Security taxes. His first position, stated in September 2007, suggests that one way to make Social Security solvent is to “raise the cap … If we kept the payroll tax rate exactly the same but applied it to all earning and not just the first $97,500, we could virtually eliminate the entire Social Security shortfall.” This proved to be none too popular during primary season, so he began talking about Hillary’s “donut” (Social Security tax on all income except the second 100,000 earned). He later changed his position again. According to his Web site, he will ask the $250,000 and ups to pay “a bit more.”

Considering that even his first proposal will not address the shortfall in the Social Security system, it is not much of a stretch to assume that is what he will go with. Factoring that into the total tax picture, the top two rates are now 47.65 percent and 51.65 percent. State and local taxes are not included. More ominously, it does not include the new payroll tax required to pay for Mr. Obama’s health plan which will undoubtedly bring the top bracket up to almost 55 percent.

At what point does Joe, the formerly Rich Guy, take his marbles and quit playing?

Patti Roberts is a tax professional with a national firm.

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