Obama's Four Tax Increases for People Earning Under $250k

I confess. Senator Obama's two tax promises: to limit tax increases to only those making over $250,000 a year, and to not raise taxes on 95% of "working Americans," intrigued me. Assume a hard-working small business owner, over the past ten years earned from $50,000 to $100,000 per year.

If Senator Obama is shooting straight with us, under his presidency the business owner could look forward to paying no additional Federal taxes -- might even get a break -- and as the business owner struggles to support a family and pay for two boys in college, a reliable tax freeze is nearly as welcome as further tax cuts.

However, Senator Obama's dual claims seemed implausible, especially when it came to my Federal income taxes. Those implausible promises made me look at what a business owner had been paying before President Bush's 2001 and 2003 tax cuts, as well as what I paid after those tax cuts became law. I chose the 2000 tax tables as my baseline -- they reflect the tax rates that Senator Obama will restore by letting the "Bush Tax Cuts" lapse. I wanted to see what that meant on impacting a small business owner.

I know how "promises" work -- so I analyzed Senator Obama's promises by looking for loopholes.

The first loophole was easy to find: Senator Obama doesn't "count" allowing the Bush tax cuts to lapse as a tax increase. Unless the cuts are re-enacted, rates will automatically return to the 2000 level. Senator Obama claims that letting a tax cut lapse -- allowing the rates to return to a higher levels -- is not actually a "tax increase." It's just the lapsing of a tax cut.

See the difference?

Neither do I.

When those cuts lapse, the small business owner's taxes are going up -- a lot -- but by parsing words, Senator Obama justifies his claim that he won't actively raise taxes on 95 percent of working Americans, even while he's passively allowing tax rates to go up for 100% of Americans who actually pay Federal income taxes.
In this example, the Federal Income Tax will increase by $3,824 when those tax cuts lapse. That not-insignificant sum would cover a couple of house payments or help my two boys through another month or two of college.

No matter what Senator Obama calls it, requiring us to pay more taxes amounts to a tax increase. This got me wondering what other Americans will have to pay when the tax cuts lapse.

For a married family, filing jointly and earning $75,000 a year, this increase will be $3,074. For those making just $50,000, this increase will be $1,512. Despite Senator Obama's claim, even struggling American families making just $25,000 a year will see a tax increase -- they'll pay $715 more in 2010 than they did in 2007. Across the board, when the tax cuts lapse, working Americans will see significant increases in their taxes, even if their household income is as low as $25,000. See the tables at the end of this article.

Check this for yourself. Go to http://www.irs.gov/formspubs/ and pull up the 1040 instructions for 2000 and 2007 and go to the tax tables. Based on your 2007 income, check your taxes rates for 2000 and 2007, and apply them to your taxable income for 2007. In 2000 -- Senator Obama's benchmark year -- you would have paid significantly more taxes for the income you earned in 2007. The Bush Tax Cuts, which Senator Obama has said he will allow to lapse, saved you money, and without those cuts, your taxes will go back up to the 2000 level. Senator Obama doesn't call it a "tax increase," but your taxes under "President" Obama will increase -- significantly.

Senator Obama is willfully deceiving you and me when he says that no one making under $250,000 will see an increase in their taxes. If I were keeping score, I'd call that Tax Lie #1.

The next loophole involves the payroll tax that you pay to support the Social Security system. Currently, there is an inflation-adjusted cap, and according to the non-profit Tax Foundation, in 2006 -- the most recent year for which tax data is available -- only the first $94,700 of an unmarried individual's earnings were subject to the 12.4 percent payroll tax. However, Senator Obama has proposed lifting that cap, adding an additional 12.4 percent tax on every dollar earned above that cap -- and in spite of his promise, impacting all those who earn between $94,700 and $249,999.

By doing this, he plans to raise an additional $1 trillion dollars (another $662.50 out of my pocket -- and how much out of yours?) to help fund Social Security. Half of this tax would be paid by employees and half by employers -- but employers will either cut the payroll or pass along this tax to their customers through higher prices. Either way, some individual will pay the price for the employer's share of the tax increase.

However, when challenged to explain how he could eliminate the cap AND not raise taxes on Americans earning under $250,000, Senator Obama suggested on his website that he "might" create a "donut" -- an exemption from this payroll tax for wages between $94,700 and $250,000. But that donut would mean he couldn't raise anywhere near that $1 trillion dollars for Social Security. When this was pointed out, Senator Obama's "donut plan" was quietly removed from his website.

This "explanation" sounds like another one of those loopholes. If I were keeping score, I'd call this Tax Lie #2.

Senator Obama has also said that he will raise capital gains taxes from 15 percent to 20 percent. He says he's aiming at "fat cats" who make above $250,000. However, while only 1 percent of Americans make a quarter-million dollars, roughly 50 percent of all Americans own stock – and while investments that are through IRAs, 401Ks and in pension plans are not subject to capital gains, those stocks in personal portfolios are subject to capital gains, no matter what the owner’s income is.

However, according to the US Congress’s Joint Economic Committee Study, “Recent data released by the Federal Reserve shows that nearly half of all U.S. households are stockholders. In the last decade alone, the number of stockholders has jumped by over fifty percent.” This is clear – a significant number of all Americans who earn well under $250,000 a year will feel this rise in their capital gains taxes.

Under "President" Obama, if you sell off stock and earn a $100,000 gain -- perhaps to help put your children through college -- instead of paying $15,000 in capital gains taxes today, you'll pay $20,000 under Obama's plan. That's a full one-third more, and it applies no matter how much you earn.

No question -- for about 50 percent of all Americans, this is Tax Lie #3.

Finally, Senator Obama has promised to raise taxes on businesses -- and to raise taxes a lot on oil companies. I still remember Econ-101. Obama do you? From both theory and practice, I know what businesses do when taxes are raised. Corporations don't "pay" taxes -- they collect taxes from customers and pass them along to the government. When you buy a hot dog from a 7/11, you can see the clerk add the sales tax, but when a corporation's own taxes go up, you don't see it -- its automatic -- but they do the same thing. They build this tax into their product's price. Senator Obama knows this.

He knows that even people who earn less than $250,000 will pay higher prices -- those pass-through taxes -- when corporate taxes go up.
No question: this is Tax Lie #4.

There's not a politician alive who hasn't been caught telling some minor truth-bender. However, when it comes to raising taxes, there are no small lies. When George H.W. Bush's "Read my lips -- no new taxes" proved false, he lost the support of his base -- and ultimately lost his re-election bid.

This year, however, we don't have to wait for the proof: Senator Obama has already promised to raise taxes, and we can believe him. However, while making that promise, he's also lied, in at least four significant ways, about who will pay those taxes. If Senator Obama becomes President Obama, when the tax man comes calling, we will all pay the price. And that's the truth.