Obama's economic plan has a faint odor to it.

[laconicsax]

http://www.barackobama.com/issues/economy/
http://www.barackobama.com/issues/economy/EconomicPolicyFullPlan.pdf

Provide Middle Class Americans Tax Relief

Obama will cut income taxes by $1,000 for working families to offset the payroll tax they pay.

* Provide a Tax Cut for Working Families: Obama will restore fairness to the tax code and provide 150 million workers the tax relief they need. Obama will create a new "Making Work Pay" tax credit of up to $500 per person, or $1,000 per working family. The "Making Work Pay" tax credit will completely eliminate income taxes for 10 million Americans.

Let's create, for the sake of argument, a single (marital status) person working full-time at minimum wage. Let's also simplify the proposed minimum wage increases and say that they already took effect on January 1, 2008 and the federal minimum wage is $7.25 per hour or $14,500 per year (2000 working hours per year). Let's also say that Obama is elected and manages to get his plan through congress unaltered in near-record time and it goes into effect by the middle of February.

The federal minimum wage of FICA tax on $14,500 is $1,109.25 (6.2% Soc. Security + 1.45% Medicare). Our hypothetical person also has $1,773.75 of their pay withheld in federal income tax. Assuming that they live in a state with no income tax, they end up losing $2,883 to withholding. Under Obama's plan, they get a rebate of $500.

If this person is married and files jointly with a spouse who also works full-time for minimum wage, their starting annual pay of $29,000 loses $2,218.50 to FICA and $3,547.50 to income tax--a total of $5,766. Obama's plan gives them an extra $1000.

The portion of withheld taxes that Obama's plan covers shrinks as annual income rises. If our hypothetical couple makes $40,000 a year jointly, they pay $3060 in FICA taxes alone.

Looking at this another way, how much of a benefit is an extra $500 once a year to someone making minimum wage? How is this any different than *'s current 'economic stimulus package' aside from being smaller?

Who are the "10 million Americans" who will have their income taxes completely eliminated? Well, using some basic math, it's pretty easy to figure out that the total withholding rate for someone in the lowest tax bracket is 17.65% (income+FICA). $500 is 17.65% of $2,832. If you take FICA out of that and focus only on the 10% income tax rate, then someone would have to make $5,000 or less to have their income tax 'completely eliminated.'

However, if you read the 'full plan,' you see this:

Obama will create a new “Making Work Pay” tax credit of up to $500 per person, or $1,000 per working family...It will offset the payroll tax on the first $8,100 of their earnings while still preserving the important principle of a dedicated revenue source for Social Security

It stands to reason that someone making less than $8,100 per year won't qualify for the full rebate. Not only that, but FICA taxes on $8,100 total $619.65. (If he's only talking about the Social Security portion of that, then I can see how he gets his numbers--6.2% of $8,100 is $502.20.) So if you have to make at least $8,100 per year to qualify for all $500 of Obama's rebate, then you end up owing $1,429.65 in FICA and federal income taxes.

It's time for Obama to scrap this plan and come up with a new one that doesn't suck.

For the record, I don't know the specifics of Clinton's plan, just the basics. Her plan seems to be lacking specifics in some areas (link 1 link 2). I'm also not a Clinton supporter.

[Milo_Bloom]

1. Major error in here

You are forgetting completely about the EIC. (earned income credit) and the standard exemptions and deductions.

[laconicsax]

2. Crap!

My mistake. The following question still stands:

If you make $14,500 per year, how much does an extra $500 really help?

[Drachasor]

4. It's easily a month's rent, maybe two. How does that not help?

[laconicsax]

5. I'm talking long term

One month's rent isn't exactly a big help when you're living paycheck to paycheck.

[Drachasor]

9. Dude, when you are living paycheck to paycheck and you get a whole extra paycheck in the mail...

How does that not make a difference? And this is a cut every year.

[enlightenment]

10. Really?

Where do you live that rents are that low?

[Drachasor]

11. Well, when I was looking around a few years back, we had places that were around $250-$300 in Cbus

(That's Columbus, btw).

Now granted, they were absolute crap and maybe the rents are a little higher now, but you can easily get stuff a lot less than $500 per month. I don't think it is crazy to think someone will be living in crap housing if they make so little money.

[enlightenment]

12. Just taking a quick meander, it looks like studios

are starting around $350-$400 in Columbus now - of course that doesn't take utilities and other costs into account. So if you're in Columbus and single then, yes, that $500 might pay a months rent.

I live in Las Vegas - the average for a studio starts about $250 HIGHER than Columbus, so not so much joy in this neck of the woods.

I'm just suggesting that how much that "rebate" is worth is largely dependent on where you live.

Interesting list here: http://realestate.msn.com/rentals/article2.aspx?cp-documentid=4880278

scroll down for the list . . .

Not too surprising to see the top and bottom; interesting where some of the other major cities fell out in the mix. Based on the figures, I think they're looking at 1-bedroom apartments rather than studios.

[Drachasor]

14. No doubt it depends on where you are

But if you are making 14k-15k a year then you can't live where the rent is $800 per month.

[enlightenment]

16. In a perfect world, of course not.

Unfortunately, moving also takes money. If you're living in an expensive place, you may not ever be able to save enough to make a move. It's a vicious cycle and not as easily answered as "live where you can afford to live," "grow a garden" and my personal favourite, "move to the country."

The working poor are poor, by reality and definition.

[Drachasor]

17. No, I mean you CAN'T LIVE THERE

Not in a place where you pay rent anyhow. You just won't have enough money, since 2/3s of your money is going straight to rent (not counting utilities).

Anyhow, my point is that $500 is a decent amount for low-income people.

[enlightenment]

18. Okay. That makes more sense.

:)

I agree, $500 is better than nothing . . . but tax rebates still don't address the fundamental problems. They're sticking plasters.

[ElsewheresDaughter]

13. rent around here is $1,400 a month

[Drachasor]

15. I believe we are largely talking about people who can't afford such rents

No offense to your economic situation, of course.

[Milo_Bloom]

6. Best guesstimate....

At 14,500 per year your "earned income" is around 4,500, as I think there are about 10K in standard deductions (something like 6650 + 3300)... (my numbers aren't exact, but that is close I believe) The $500 would eliminate your INCOME TAX portion ($450 on 4500 earned income)

You can look up the approximate EIC here (http://www.cbpp.org/eic2007/08_Benefits.pdf)

And the tax table here http://www.irs.gov/formspubs/article/0,,id=164272,00.html


The real benefit comes in when you are talking about people with children, because that is when the EIC kicks up.

You take a single parent on a slightly higher than minimum wage job, (say 22K) their "earned income" would be about 8,000 after deductions, which would mean they "owe" about 800 in income taxes and then would have paid about 2200 in payroll taxes, for a total of 3000 paid in taxes during the year. Their EIC Credit would be 2720 + 500 (Obama Credit) = 3220.. meaning they would have paid absolutely no taxes under this system where they would have before.

[laconicsax]

8. Got it, thanks for the links.

[hfojvt]

3. when he says "income taxes" that does not mean "all Federal taxes"

How does it differ from Bush's plan?

In the biggest way of all - it is NOT tilted towards the wealthy.

Unlike the Bush tax cuts and unlike the stupid stimulus rebate. With Bush's current rebate, poor people got nothing if they didn't pay income taxes. So Pelosi negotiated rebates for poorer people, but they still got less than richer people. Somebody making $100,000 a year gets $600 and if they are married they get $1200, and if they have two kids they get $1800. Somebody making $11,000 a year, like, say, MYSELF, gets $300.

His plan does not suck. $500 is not gonna solve every problem, but at least he has a plan that includes all working people (not just the wealthier ones who pay INCOME taxes) and is not tilted towards the wealthy. He also has tied it to FICA taxes so it does not seem like welfare.

[laconicsax]

7. Makes sense.

Thanks.