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POLITICIANS, TAXES AND THE FINE PRINT

June 27, 2008

The two big tax policy think-tanks, the Tax Foundation and the Tax Policy Center, have been looking at the Obama tax plans.

The center-right Tax Foundation says that the Obama plan would accelerate the narrowing of the federal tax base to high income taxpayers. This creates an obvious policy shortcoming: if the income tax only applies to small segment of the voters, the majority has no incentive to exercise fiscal restraint because someone else picks up the tab.

The center-left Tax Policy Center illustrates the unintended consequences of sticking it to big corporations. The Obama plan eliminates income taxes on elderly households with income under $50,000, but it actually would increase their tax burden:

On average, low-income older people own some capital—stock in their retirement funds, homes, or maybe mutual funds—and that capital bears some of the corporate tax. Obama’s plan would increase corporate taxes and poor older couples would bear some of the cost—not all of them and not much of the cost but enough to make their average federal tax bill rise.

The Tax Policy Center notes that some academics say corporate employees, rather than shareholders, bear much of the burden of corporation taxes. That means a higher corporate tax either hurts workers or old people. That's a political winner!

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