Spreading the Wealth

The latest talking point among conservatives--which was picked up and amplified greatly by this Wall Street Journal editorial this morning--is that Obama's tax plan is essentially a welfare plan because it promises "tax cuts" to people who don't currently earn enough to pay income taxes. As the Journal puts it:

Now we know: 95% of Americans will get a "tax cut" under Barack Obama after all. Those on the receiving end of a check will include the estimated 44% of Americans who will owe no federal income taxes under his plan.

In most parts of America, getting money back on taxes you haven't paid sounds a lot like welfare.

Now let's put aside for a moment the fact that--as Hilzoy points out--these 44% of Americans pay all sorts of taxes other than income taxes (such as payroll taxes, sales taxes, property taxes, gas taxes, etc.).

The reality is that Obama's middle class tax cut plan would cost roughly $80-85 billion a year, and of that number, less than $50 billion (by my calculations) would go to those 44% who don't currently earn enough to owe federal income taxes (in the form of $500 tax rebates).

Let's compare Obama's "welfare" plan to John McCain's signature domestic initiative, his Homeownership Resurgence Plan. Under that plan, $300 billion in tax payer money would be used to purchase troubled home mortgages at face value. Not only would that plan result in financial institutions getting a full return on bad investments, but it would relieve participating homeowners of thousands of dollars of debt obligations. If someone has a $200,000 mortgage on a house now worth only $150,000, that person would have $50,000 worth of debt wiped away and assumed by the federal government (i.e. the taxpayers). They would also receive a new mortgage at a lower rate, courtesy of federal taxpayers.

Moreover, because the program is only open to those who are delinquent on their mortgages, it stands to reason that the vast majority of those participating will belong to the same much-maligned 44% of Americans who don't pay federal incomes taxes.

So let's recap. When Obama offers a $500 tax credit to low and middle income Americans, it is the equivalent of welfare. He is a socialist who wants to "spread the wealth." But when McCain proposes to use a far larger sum of taxpayer money (over six times larger) to forgive thousands of dollars of individual homeowner debt (and in doing so, provide a taxpayer-funded windfall to financial institutions), this is just capitalism in all of its glory. Makes perfect sense.

So what's really going on here? Just typical Republican incoherence and hypocrisy? I wish. Unfortunately, I think what we're seeing is an attempt by the McCain campaign and its surrogates to reignite 80s era racial resentments. The use of the word "welfare" in this context is carefully calculated. The Republican party spent years painting welfare programs as, essentially, giveaways to minorities, thereby stoking racial resentment. With a black candidate in the race, these somewhat stale tactics may have a new resonance (at least that's what the McCain camp is hoping).

When McCain accuses Obama of wanting to "turn the IRS into a giant welfare agency" and his ads say Obama will "reward his friends with your tax dollars," it's not hard to see the subtext. For a long time, words like "socialist" and "welfare" have been code for taking your (white people's) money and giving it to others (minorities).

Just as Bill Ayers was used primarily as a vehicle to justify the use of the words "Obama" and "terrorist" in the same sentence, this particular tax argument is being trotted out as an excuse to use "Obama" and "welfare" in the same sentence. The substantive arguments in both cases are a complete sideshow. The goal is the connotation, the dots that voters are left to connect in their own minds.

Ultimately I don't think it will work, but it's naive not to acknowledge what's going on.