Obama's change could cost big bucks | Philadelphia Inquirer | 09/14/2008 So what does Obama propose? To be sure, he does have a few tax cuts aimed at middle- and low-income Americans sprinkled through his plan. His "Making Work Pay" credit would offset payroll taxes on the first $8,100 of earnings, generating savings of up to $500 per person or $1,000 per family. His campaign says that will eliminate income taxes for 10 million low-income Americans. But we already have the Earned Income Tax Credit for low-income wage earners. The IRS estimates that nearly one-third of EITC payments - more than $10 billion annually - now are wasted in overpayments. Is it really wise to create an entire and complicated new credit that would be subject to the same abuses? Obama's small tax cuts would have a negligible effect on our economy because of their indirect and minimal effect on economically productive behavior. His tax increases, however, are something else again and seem likely to have a significant, negative effect on our nation's economic growth.The centerpiece of Obama's plan is to end the Bush tax cuts and allow the top two tax rates to return to 36 percent and 39.6 percent. He would also phase out personal exemptions and deductions for those with income in excess of $250,000. Again, with an eye toward punishing those who have achieved economic success, Obama plans to end the Social Security payroll-tax cap for those making more than $250,000. The cap is currently set at a more reasonable $102,000. Under Obama's plan, these individuals will face a tax rate of 15.65 percent from payroll taxes and the top income-tax rate of 39.6 percent for a combined top rate of more than 56 percent on each additional dollar earned. In a single stroke, Obama's massive payroll-tax increase abandons any pretext of Social Security's being "social insurance," as opposed to just another welfare program. It would massively expand government with almost no positive effect on Social Security's solvency. Obama's plan would keep Social Security in the black for only three more years. Annual deficits would hit in 2020, instead of 2017, and by the 2030s the system would still run an annual deficit exceeding $150 billion. As if those proposals were not enough to weigh the U.S. economy down, Obama plans to nearly double the top dividends and capital-gains rate from the current 15 percent rate to as high as 28 percent. Indeed, while most tax cuts may result in slight revenue declines even as they spur economic growth, Bush's dividend and capital gains tax cuts actually have increased federal revenue. Obama would be wise to reconsider these particularly destructive tax increases. On the other hand, Obama pledges to follow President Bush in rapidly increasing the size and scope of the federal government. Bush has allowed the federal budget to grow from 18.4 percent to 20 percent of the nation's gross domestic product. Former President Bill Clinton, on the other hand, oversaw a reduction of federal spending from 22.1 percent to 18.7 percent of GDP. Unfortunately for the U.S. economy, the likelihood of massive government expansion under Obama means that the only important "change" will be in the mechanism by which our ever-expanding government is funded. Great, more taxes and an ever expanding government, yipee!