Obama and the tax cuts

News is breaking that Barack Obama will consider a $310 billion tax cut as part of the stimulus package he’s looking to implement. That sounds like a good thing, right? But it may all be smoke and mirrors….just another way to spread the wealth, only with bipartisan support.

Mr. Obama knows the Republicans will balk at any big spending package so it sounds like he’s throwing them a bone in the form of “tax cuts”. According to the Wall Street Journal some of these tax cuts will go to those who pay no income tax.

The largest piece of the overall tax relief would involve cuts for people who pay income taxes or who claim the earned-income credit. It would serve as a down payment on the “Making Work Pay” proposal Mr. Obama outlined during his election campaign, providing a credit to offset Social Security and Medicare payroll taxes of $500 per individual or $1,000 per family.

On the campaign trail, Mr. Obama said he would phase out a similar tax-credit proposal at around $200,000 per household, but aides said they haven’t settled on an income cap for the latest proposal. This part of the plan is similar to a bipartisan initiative launched in early 2008, which sent out checks worth $131 billion. (Emphasis Mine) Read full story.

Republicans should demand more detail before supporting these so called tax cuts. First of all, Social Security and Medicare weren’t designed as welfare systems, they were billed as insurance for our old age. (Basically it’s a big Ponzi scheme that depends on the young paying into the system to pay for the old. If today’s workers stop paying the payroll tax won’t we simply be making those programs more insolvent?)

Furthermore, not everyone paying Social Security and Medicare payroll tax pays income tax. By giving those individuals a tax cut what they’re really doing is redistributing wealth, just as Obama promised to do. Without knowing the income cap for these tax breaks there’s no way of knowing if they’ll have any stimulative effect on the economy.