One of Barack Obama’s most potent campaign claims is that he’ll cut taxes for no less than 95% of “working families.” He’s even promising to cut taxes enough that the government’s tax share of GDP will be no more than 18.2% — which is lower than it is today.

It’s a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he’s also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of “tax cut.”

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There’s another catch: Because Mr. Obama’s tax credits are phased out as incomes rise, they impose a huge “marginal” tax rate increase on low-income workers. The marginal tax rate refers to the rate on the next dollar of income earned. As the nearby chart illustrates, the marginal rate for millions of low- and middle-income workers would spike as they earn more income.

Some families with an income of $40,000 could lose up to 40 cents in vanishing credits for every additional dollar earned from working overtime or taking a new job. As public policy, this is contradictory. The tax credits are sold in the name of “making work pay,” but in practice they can be a disincentive to working harder, especially if you’re a lower-income couple getting raises of $1,000 or $2,000 a year. One mystery — among many — of the McCain campaign is why it has allowed Mr. Obama’s 95% illusion to go unanswered.

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Obama’s 95% Illusion

I think it is really a dellusion on Obama’s part that any of his economic schemes will work.He basis everything on an economy that is still floating and going forward.Tax cut? Not even is his plan a tax cut it is a “Demogrant” that comes fromcompanies that actually produce things and make money. An Obama presidencywill create such dis-incentives for companies to hire and invest that the economywill sink and the “tax cuts” that all of the “middle-income” workers are waiting forwill be replaced with long waits in the unemployment line. That’s if your state willhave any money left in it’s unemployment fund.

CNN: Some state unemployment funds drying up

As Obama likes to say – “You can’t drill your way out of this problem”.

Now some state unemployment funds are drying up and I say: “You can’t tax your way out of this problem.””There are some real serious problems with unemployment funding that need to be addressed,” said Andrew Stettner, deputy director of the National Employment Law Project, a policy group that advocates on behalf of unemployed and low-wage workers.The group, which tracks legislation and activity related to state and federal unemployment benefits, says that California (Blue-55), Michigan (Blue-17), Missouri (Trending Blue-11), New York (Blue-31), Ohio (Trending Blue-20), South Carolina (Red-8), Wisconsin (Blue-10), Indiana (Trending Red-11), Kentucky (Red-8) and Arkansas (Red-6) have less than six months’ worth of unemployment trust fund reserves, putting the funds at high risk of insolvency.”These states are not ready for a recession, and they’re going to see a big hit if we have a protracted job slump,” Stettner said. “We’re going to see them seriously in the red, but they can take some action and not be swimming in red ink.”When reserves run dry, states can borrow from the federal government’s unemployment trust fund. Typically, states have a year to repay the loan without accruing interest.Michigan, which has the country’s highest unemployment rate, at 8.1 percent, is already borrowing from the federal government, even though it is not in the red just yet, according to a spokesman.”Many of the states facing solvency challenges could be going into red as early as 2009, but it’s still early enough for them to get out of it,” he said. “The trick is to make a system that’s self-financing.”Will fancy that! The trick is to make a system that’s self-financing. Well how do you do that? You create jobs! How do you create jobs? Create an atmosphere where a business can thrive! How do you do that? Give a company tax breaks and incentives to hire workers! The more a business feels like it can thrive the more the business will feel like it can grow and pay higher wages. Business can work in conjunction with local colleges and trade schools to encourage workers to take classes that will improve job skills.If a business feels a constant squeeze from a FedZilla that wants more and more tax dollars to support more pork barrel projects and gross mis-management then those business’s will shutter or move to another state or move completely out of the country.An Obama presidency would put such a squeeze on small to medium sized business’s – I fear this could really accelerate the U.S. into a depression – one that we would not be able to tax our way out of.