Obama’s Tax Plan Folly: A Middle-Class Tax Hike

Senator Barack Obama declared recently that he wants to “reform our tax code so that it rewards work and not just wealth.” We think that is a great goal if it means a simple tax system with low marginal tax rates. Unfortunately, a close inspection of Obama’s proposals reveals something disquieting: he would raise marginal tax rates for many middle-income taxpayers, a bad move for anyone seeking to promote economic growth (see chart above).

Read more here of the American Enterprise Institute article.

Note that for tax year 2006, the median Adjusted Gross Income (AGI) for American taxpayers was $32,000. Since median income is the statistical definition of “middle-class,” that group will experience a whopping increase in effective marginal tax rate from about 20% to 35% under the Obama tax plan (see chart above).

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Comment by John Lounsbury

2008-09-02 23:14:22

I don’t understand. I read an article within the past couple of days (I think by The American Tax Institute?) that totally contradicts this article. The article reported exactly how McCain and Obama tax proposals would affect taxes paid by at all income levels up to several million dollars.

This article contradicts Obama’s pledge to cut income taxes for 95% of all wage earners. Does this mean he is lying already before the final campaign is even underway?

Does this article somehow assume some of the income is unearned (dividends and capital gains)? Obama has indicated he will consider raising taxes here, but I am unaware that there are any specifics as yet.

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Comment by John Lounsbury

2008-09-02 23:26:07

I have read the entire article and see that they have selected a special case situation to create this chart. It is not a situation applicable to a vast majority of the people in this AGI region.

I also found that the study is based on a preliminary study by the Brookings Institute. I would like to see the study updated with the information now in the two candidates’ platforms.

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