Basically, Obama's "Middle Class Tax Cut" actually sucks. What he's really doing is adding about 10 more checkboxes to the 1040, most of which you probably won't be able to check off. There's an article from the WSJ which covers it. But I want to talk about this graph from that article:
We all get that Obama is raising taxes on the rich. But do you know he's raising taxes on the poor?
I guess lawyers are bad at math. Because the way he's structured his tax plan with all these checkboxes that apply or don't apply at different income levels what he's done is raise the tax rates on what economists call the marginal tax rate, and I call the overtime ass rape.
I call it that, because basically, the government doesn't tax you on the first dollar you make. It ramps up from there, until at the end of the week, your paycheck is a lot smaller than it should be. Whatever that works out to be, that's your general tax rate. But when you work overtime, you get taxed at a much higher rate. So if you work say 4 hours of overtime one week, you might expect your check to be for 6 hours more if you get an extra 50% for overtime. But it never is, because that 6 hours of pay gets taxed at the maximum rate. So instead of 6 hours of pay, you get 4 hours of pay.
The people who get reamed the most are the people making $40,000/year. Their marginal tax rate is 40%. Which means that even before state income taxes, if they work 4 hours of overtime, they get paid for 3.6 hours.
So with Obama's plan to hand out this $500 tax rebate, someone making 20/hour would make an extra $.25/hour, or $40/month. Whoopdedo. But if they worked 4 hours of overtime, instead of making an extra $120 they only make $72. So they just paid $48 in taxes. That $40 they got this month suddenly doesn't look so good, and if they worked 4 hours of overtime each week, they paid $192 more in taxes.
This is not the way to rebuild the economy, and it illustrates the fundamental problem with the wealth transfer philosophy at the core of Obama's Tax Plan. It completely undermines people's incentive to work just a little bit harder. Why work overtime? The government will just take it all, and what they don't take will be eaten up by more child care.
Forget about Joe the Plumber who wants to make $250,000. What about Joe the Factory Worker who just put in 4 hours this week of overtime but had to pay more in child care? He's now behind because the government will take more in taxes than he earned.
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