Obama tax cut ‘refunds’ those who don’t pay

Barack Obama says he will give 95 percent of all American workers a tax cut but does not mention that his plan would send checks to tens of millions of tax filers who pay no personal income taxes - payments that critics say look “suspiciously like welfare.”

Mr. Obama’s campaign promise, which he has repeated in his speeches and in the presidential debates, stems from his “Making Work Pay” tax cut that will give a $500 refundable tax credit to every worker or $1,000 to each working couple. But because this provision in his economic-recovery plan is “refundable,” a large number of middle- to lower-income workers who have no income-tax liability after taking tax credits and deductions the that Internal Revenue Service allows, will be given the equivalent of the tax cut in the form of direct payments from the U.S. Treasury - funded by higher-income taxpayers.

Because the IRS says that nearly 46 million tax filers - one-third of all filers - had no tax liability in 2006, there is the question of how millions of Americans can receive an income “tax cut” when they pay no taxes.

“It’s got to raise alarm bells when you claim you are going to cut taxes for 95 percent of working families when more than 40 percent of them pay no income taxes,” said Phil Kerpen, policy director at Americans for Prosperity, a grass-roots free-market advocacy group.

“What he’s really talking about doing is mailing a check, and to me, that looks more like a welfare program than the kind of real tax relief that would encourage work, savings and investments,” Mr. Kerpen said.

The freshman senator’s campaign Web site defines the Democrat’s tax-relief proposal only in terms of offering workers “middle class tax cuts” and “for 10 million low-income Americans, will completely eliminate their federal income taxes.”

But in a recent research paper on federal taxpayers, Scott Hodge, president of the nonpartisan Tax Foundation, said, “There will be 47 million tax returns with zero-income tax liability in 2009 under current law. That’s one-third of all tax returns and those 47 million tax returns represent 96 million individuals.”

Mr. Obama repeatedly says in his speeches that almost all workers and “working families” will benefit from his “tax cuts.” In last week’s second presidential debate with Sen. John McCain in Nashville, Tenn., he said, “What I want to do is provide a middle-class tax cut to 95 percent of working Americans.”

At another point in that debate, he enlarged the universe of his tax-cut recipients, saying, “I want to provide a tax cut for 95 percent of Americans.”

Investor’s Business Daily pointed out earlier this month that Mr. Obama’s ” ‘working families’ does not include all households. Throw in singles, retirees, students and the unemployed, and the share getting some tax-related benefit is a good deal less.”

The Tax Policy Center, a nonpartisan policy analysis group established by the Urban Institute and the Brookings Institution, estimates that about 80 percent of households would receive a tax cut.

But Investor’s Business Daily also questioned whether Mr. Obama’s “tax cut” was really a tax cut for people who don’t pay taxes.

“There’s the difference, not acknowledged by the Obama camp, between a real tax cut and the type of ‘tax relief’ that looks suspiciously like welfare,” the newspaper editorialized.

“A true tax ‘cut’ is a reduction in the taxes you’re paying. In contrast, much of the ‘relief’ in Mr. Obama’s plan consists of ‘refundable credit’ - payments you get even if you owe no taxes at all,” the paper said.

The Obama campaign dismisses such criticism, arguing that even if many working taxpayers owe no income taxes, they pay Social Security payroll taxes out of their earnings. The campaign also notes that Mr. McCain’s economic plan also includes refundable tax credits.

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