Senator Obama’s proposed “tax cuts for the middle class” are actually marginal rate hikes in disguise.
It’s pretty simple. If you have an adjusted gross income of between $85,000 and $100,000 or so, Obama won’t raise your marginal tax rates. If you’re anywhere else in the income scale, you’re not so lucky.
Although Obama is offering a new series of tax breaks, they undermine rather than improve economic incentives. First, whether or not you get those breaks will depend on your income. In Washington, taking away tax breaks as families work harder to make more money is called a “phase-out.” Economists have a different name for it—we call it a tax. Reducing a person’s tax credit as his income goes up also reduces his incentive to earn more income.