Obama & reform/welfare

My parents might think that Obama's plan is "welfare" (and what would be wrong with that, you ask), but it's all about terminology. I checked on the Obama-Biden website just to be sure so that I can talk about it w/ my parents. You should check it out, too. Go to factcheck.org to get the short version:

"Welfare" or "Reform"?


The "welfare" claim rests on the argument, made in an Oct. 13 editorial in the Wall Street Journal, about refundable tax credits. Obama proposes to grant a number of refundable tax credits to low- and middle-income workers. For example, he would give a $500 tax credit ($1,000 for a couple) for workers, which would phase out for single workers making $75,000 or for couples making $150,000 per year. As the Journal editorial says: "You can receive these checks even if you have no income-tax liability." That's true enough. Whether or not that makes them "welfare" is a matter of interpretation, however. As the Journal editorial also says in its headline, "It depends on what the meaning of 'tax cut' is."

Fair enough. But McCain himself is proposing refundable tax credits of up to $2,500 a year for individuals, or $5,000 for families, as part of his health care plan. McCain doesn't call his credits a "tax cut" but he doesn't call them "welfare" either. He does call it tax "reform," right there on his own Web site:

McCain Web site: John McCain Will Reform The Tax Code . . . [E]very family will receive a direct refundable tax credit - effectively cash - of $2,500 for individuals and $5,000 for families to offset the cost of insurance.

McCain makes his tax credit refundable to make it worth just as much to low-income workers as to high-income workers. If it were not refundable, it would be worth $0 to anyone who makes too little to pay any federal income taxes. A non-refundable credit would be worth the full amount only to individuals who owe at least $2,500 in federal income taxes, or couples who owe at least $5,000. Obama makes his tax credits refundable for the same reason – so they will benefit workers who earn too little to pay federal income tax.