• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Obama's Poverty Trap

    Barack Obama (D-IL) attends a rally October 18, 2008 in Orlando, Florida


    Barack Obama has claimed he would lower taxes on 95% of workers — even though more than 40% of tax filers don’t even pay taxes. What he says is true, but what it really means is that he is reintroducing a massive increase in the welfare state, costing about $30 billion per year. According to the Center for Data Analysis’ microsimulation modeling, Obama would increase the number of tax filers who receive a check from government without paying any taxes, including payroll taxes — people filing just to receive a welfare check — by about 10 million. Where will the $30 billion per year come from? From those who are paying taxes, of course. And indirectly from all of us, when the economy is dragged down by higher tax rates on businesses.

    What is even more frustrating is that many low-income households would actually have higher effective marginal rates under Obama’s proposal than under McCain’s proposal. This means if these households increase their earnings, they will be faced with new tax burdens, so they are better off staying poor. Obama’s plan would particularly hit those under 200% of the poverty line. According to our microsimulation modeling, Obama would effectively be extending the poverty trap. This is something his own economic adviser has warned against. The reason for the higher marginal rates is the fact that Obama is increasing credits for the poor, rather than reducing taxes for everyone. When the tax credits phase out, the marginal rates on these households increase.

    So to recap, Obama’s plan increases the number of welfare recipients, and extends the poverty trap of poor households.

    Posted in Ongoing Priorities [slideshow_deploy]

    17 Responses to Obama's Poverty Trap

    1. Reddy Righter, NYC says:

      I'm trying to figure out how giving tax credits to the wealthiest families and businesses spurs economic growth, when the wealthy are sitting on their profits, or investing them overseas by outsourcing jobs.

      I know people say cutting taxes under Reagan spurred growth, but it hasn't seemed to work under Bush.

      Bush cut taxes, and continued to fund an expensive war, and grew the deficit. But the economic growth hasn't come. Was Reagan just lucky?

      It would be nice for all of us to have low taxes, but are we just leaving our kids a big credit card bill in the name of foreign debt?

      Or am I missing something?

      Reddy Righter

    2. Loren Mason, Tallaha says:

      Dear Mr. Reddy Righter:

      With all due respect, Bush's tax cuts had the highest amount of revenue received by the government in the history of the U.S.. Ronald Reagan's tax cuts brought us out of Jimmy Carter's huge inflation and massive tax burden. Let me ask you this, have you ever been given a job by a poor man? When you tax the rich that own corporations or tax the corporations, who do you think pays the taxes? The consumers! Corporations do not pay taxes, you the consumer does. And since we cannot be all business owners we receive employment. Employment that feeds our families, puts a roof over our heads and lets us live the life styles that we have come accustomed to. This is capitalism, it is the greatest standard of living know in the history of the world. What was the reason that we broke off from England to begin with? Our way of life as Americans, gives us the greatest opportunity in the world to work and prosper. Please stop listening to sound bites and look closely at the facts on what lower taxes do to the American economy.

      Loren Mason

    3. Austin, Provo, UT says:

      Reddy Righter,

      It seems to me that we've seen steady growth in GDP over these recent years. In other words, the Bush tax cuts have spurred economic growth.

      While it's true that the deficit has grown, it's still much lower (as a percentage of GDP, or in relative terms) than it has been in the past.

      If you believe we haven't seen economic growth because of this recent recession, you're dead wrong. We're in this recession because of the sub-prime lending crisis, which was driven by liberal ideology to make housing more affordable. The Bush tax cuts must be made permanent so that we can spur GDP growth and lessen the amount of time we're in this recession.

      Also don't forget that there are business cycles as well, that will take place, no matter what the policies are.

    4. Steve Mink, Cincinat says:

      Where do you get your information on where the wealthiest sends there money overseaseas or sits on their profits? Seriously if you believe that, then your out of touch with how the Capitilist Principle in which this country is framed on operates. Rich people spend money by investing in businessess and their infrastucture which in turn creates jobs for the average middle income wage earner.

      When you raise taxes, jobs become outsourced overseas, cause its easier and cheaper, remember the goal of business is to make money and they will either find a way or go into bankruptcy. The USA has the 2nd highest Business taxes in the world and I guarentee you if the government cut taxes even more then more companys will create jobs here, and grow our economy.

      Its true we have a deficit, but thats partly because of 2 wars, which is arguably very important, but you cant just forget about everything else including the economy while fighting a war.

      I didnt see ANYONE complain about the economy back in "04" when Wall Street was at its highest point total EVER, Plus I didnt see anyone complain about anything with record low

      un-employment figures during that time frame either. In fact the Economy didnt start to "tank" untill the Democrats took over congress in "06"

    5. mythbuster Palm Harb says:

      ReadyRighter'S comments are pretty much liberal talking points.First we were in fine shape with Bush until 2006 when the libs took over congress. Go back and check the facts on employment, savings, home values, etc. The people just dont want to believe the truth they want to believe the media.Congress is responsible for passing laws and oversight not the President.The current financial crisis was a direct result of greed and incompetance in Obama and this congress.

    6. PPE, Pittsburgh PA says:

      If permanent tax cuts for all is such a bad idea why is a tax rebate a good idea for spurring economic growth. Check the numbers, there was growth and job creation under the Bush tax plans. It is only recently that this housing loan dibacle has caused the growth to slow and lose jobs. Getting credit is a problem for businesses too right now.

      You cannot continue to tax the highest wage earners and entreprenours even more, they are the ones who create jobs by investing their money. Soon they will quit doing that as well.

    7. Barb MN says:

      It's all government spending. And the government's actions are deliberately causing the collapse of small businesses. Tax cuts to bigger business would create more jobs and employ more people. Which sounds logical but if big businesses are taxed higher the increased cost will be put on their product and in return goes to the consumer. Or they may be forced to lay-off.

      The government has started to subsidize big business to fulfill it's agenda on destroying the freedom to capitalize. Which every person in this country had the opportunity to do for themselves. If your willed there used to be a way. No government necessary which means LESS COST TO THE CITIZENS!

      The people give the government intelligent, efficient, sound advice but the government sees us as subjects not citizens. Which also says it's deliberate. The government and those they provide for with our money has taken over.

    8. Pingback: Real Estate Blog - Obama is fibbing - 50% of Americans don't pay any taxes

    9. Zach, TN says:

      "Obama has claimed that he would lower taxes on 95% of workers – even though more than 50% of workers don’t even pay taxes."

      That's not true. While around 40% of workers pay no income tax, most of them are still net taxpayers since they pay payroll taxes. I expect Heritage to not make the same "omissions of fact" that Obama and McCain do in their ads.

    10. Ed, Leesburg, VA says:

      I don't believe you. I don't believe Obama. I don't believe McCain. All of your "camps" take a position and like any good lawyer, argue that black is white and white is black and then expect to get compensated in some way at the end of it all. I sincerely attempt to follow the arguements. I am committed to being an informed voter, but the posturing and outright fabrication that has unfortunately become the accepted form of entertainment/news makes it impossible. None of you help me.

    11. Barb MN says:

      There comes a time when people have to figure things out for themselves. Obama wants to take that away from you! DON'T LET HIM! The worst thing we can do is watch the news media who have become devout followers of Obama. The media themselves spin any truthful negativity on Obama to make those that know the truth look the fool. They use the racist word when the word doesn't even imply. The word is their crutch. This is a great takeover of every principle, value, rights, and freedoms of America.

      Will Warren Buffet become tax exempt? Barbra Streisand? Susan Serandon? Oprah Winfrey? They shouldn't be, they may think they're protected but I bet Obama is a back stabber. He is to this country now. How is he going to tax people in Hollywood?

      Obama did say he is willing to pay more taxes as is Warren Buffet. All he would have to do is get rid of 3/4 of the government now and we would be fine. 3/4 hypothetical, based on observation, is the amount of government that does not serve the people as a whole. The government's job is to serve the people as a whole.

      I am disappointed in many immigrants as the majority in my neighborhood is voting obama. Even though obama wants to run the same types of governments immigrants took refuge from!? I expected they would vote for freedom.

      Suspicion arises as to whom Obama is really working for as he wants to feed the world with our money when he could teach the world to feed themselves. He is dangerously threatening.

    12. Pingback: Johnnie Byrd’s Weekend » Blog Archive » October 21, 2008 - Talking Points

    13. Pingback: The Obama Tax Redistribution Plan | ChooseTheHero.com

    14. Gene Laabs says:

      WOW!! These are some great comments and are very incouraging to see so many with a solid understanding of the dangers the country will fase under Obama/libel control. Nothing this old country boy can add other then DON'T EVER GIVE UP!!!!

    15. walter puette , Flor says:

      I only have to say , that obama is just another way to say Socialist.Socialism is a flag word for stupid its been tried before and failed. I'm at the bottom so i guess i have the most to gain, but it is against the grain of everything American. Taxasion without representation! and with congress having an 14% approval rating lower than the presidents 26% i feel we have no representation ! Brace your loins we're gona look like Venuzula Ola! is moderated another word for the fairness doctraine?MOPRwalt

    16. Pingback: Understanding taxes (if that is possible?) « Right Wing Chicks

    17. Terry, Vancouver Was says:

      I work for minimum wage and I pay federal income tax and, of course, payroll taxes.

      What am I doing wrong to be paying more federal taxes than more than 40 percent of tax filers?

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.