Thursday, July 31, 2008

What Obama’s Middle Class Tax Cut Would Mean to Utahns

Democratic Presidential candidate Barack Obama has floated the idea of providing a “middle class tax cut” of $1,000. His campaign appropriately points out that this would eliminate the income tax for millions of people. What would be the impact here in Utah? I guess it depends on what you consider to be “middle class.” My wife and I for the first time last year, broke the six figure mark for Adjusted Gross Income (AGI). I live in a modest house in a relatively inexpensive community. We have two vehicles, one a 1996 model, the other a 2002. Our federal income tax burden was around $10,500, equating to a roughly 10% effective tax rate relative to AGI.

In Utah, the average federal income tax for AGI groups are as follows:

Over 1,000K---$708,958


For filers reporting AGI less than $25,000, Obama’s plan would for the most part eliminate their income tax liability (depending on whether they file as single or married filing joint) and assuming that Obama considers middle income to include up through $100,000, the cut would reduce by over half the tax burden of filers filing between $25,000 and $45,000. As you increase in AGI, the percentage of a decrease in your tax burden goes down significantly. I don’t know whether the decrease would somehow disappear once someone reaches a certain threshold or would the decrease be in effect for everyone’s income to a certain degree.

For the record, I am supporting Barack Obama, but I don’t necessarily support the tax cut he is proposing. The myth that the middle class is over-taxed by the federal government makes good politics, but it doesn’t hold when given careful scrutiny. With deficits out of control, a declining dollar, wars being fought in two countries and crumbling infrastructure needs, I don’t think it is time for a tax cut. I believe a tax cut will make things worse, not better. A short-term infusion of money may help people pay their increased gas costs, but in the long run, we need to be spending money developing clean and renewable energy and developing better mass transit systems.

And though I am in favor of progressive tax policies, I think the current income tax is already fairly progressive. All Americans need to pay their fair share. Eliminating people from paying taxes reduces their investment in our country. To some extent I agree with Fareed Zakaria, in his book “The Future of Freedom”, that the need for taxes makes government responsible to the public. Our nation was not founded out of a rebellion against taxes, it was a rebellion about taxation without representation. And as our government spends more money than it takes in, the old adage is true, “if you are spending too much money, you don’t solve the problem by quitting your night job.”


The said...

Most Utahns with three or more children making $60,000 or less are already pay zero or nearly zero federal income taxes.

The Utah Taxpayers Association (yes, I know you don't like these guys but think they get these kinds of things right) do a periodic tax burden analysis of a median income family.

Obi wan liberali said...

Hey, the, I don't care what the Utah Taxpayer Association says unless it is true. They do some valuable analysis, but they do have alterior motives.

Notice that my post wasn't intended to support liberal propaganda. On tax issues, as well as all issues, I seek to be as objective as possible.

Urban Koda said...

I think you put it well, however in addition to the idea that when you are spending more than you make, you don't quit your night job, I'd like to see less spending in the first place. Pulling out of Iraq and not doing anything stupid like waging war on Iran would be at the top of my list of priorities.

I'm all for fair taxation, I just would like there to be some accountability for how the money is spent.