Obama Tax Plan

The good news about yesterday's Barack Obama speech on tax policy is that it's a good speech. The basic theme of the speech is that the tax code should be made simpler, fairer, and more progressive. I agree! Unfortunately, the policy followthrough is a little lacking:

  • Cutting taxes for 150 million Americans and their families, allowing them to get a tax cut of up to $1000.
  • Easing the burden on the middle class by providing a universal homeowner’s tax credit to those who do not itemize their deductions, immediately benefiting 10 million homeowners, the majority of whom make under $50,000 per year.
  • Eliminating the income tax for any American senior making less than $50,000 per year, eliminating income taxes for about 7 million American seniors.
  • Simplifying tax filings so millions of Americans can do their taxes in less than 5 minutes.

Andrew doesn't like that last part, under which "The IRS would send prefilled tax forms to 40 million workers who take the standard deduction and have a bank account." That, though, is a perfectly good idea that, though not original to Obama, he is just now injecting into the present campaign.

The homeowner's tax credit idea is directed at a real problem -- the bad distributive effects of our current tax treatment of homeownership -- but addresses it from the wrong side. Having the tax code show favoritism toward homeownership over other kinds of investing makes no real sense. Eliminating the favoritism isn't feasible, but a good incremental step to making it more progressive would be to limit the favoritism more at the top, and give people near the bottom either some other form of tax relief or else more services.

Having seniors who make less than $50k pay no income tax just seems to totally lack rationale.

The first plank, which would be a new kind of refundable tax credit, has a worthy impulse but seems poorly designed. The tax credit situation is already very complicated. The right thing to be doing is streamlining it, as in the EPI's proposal for a SImplified Family Credit, not further complicating it with an additional credit.