Obama's Senior Citizen Shell Game

By INVESTOR'S BUSINESS DAILY | Posted Tuesday, August 12, 2008 4:20 PM PT

Taxes: Barack Obama's promise of no income taxes for senior citizens taking in $50,000 or less is a gimmick disguising yet another new entitlement when existing entitlements require reining in to avoid fiscal ruin.

Read More: Budget & Tax Policy | Election 2008

In the last half-century, the drop in poverty among the elderly has been astonishing — from 35% in the late 1950s to about 10% today. For many seniors, the collective income, benefits and wealth — including Social Security, pensions, investments and real estate — mean they're often more than self-sufficient and frequently in better financial shape than their kids and grandkids.

So why does Sen. Obama want to exempt this demographic group from income taxes? Politics, of course. Seniors make up one of, if not the, most powerful voting bloc in America.

Nineteen years ago this month, Rep. Dan Rostenkowski, then chairman of the House Ways and Means Committee, was chased down a Chicago street by dozens of little old ladies shouting "coward" and "'impeach" as he tried in vain to reach an awaiting car. And all because the catastrophic health care law he supported had an income tax surcharge for seniors of $800, rising to more than $1,000 several years later. That law was repealed and remains to this day the only entitlement program ever undone.

Think of those seniors this year who are sitting on the political fence, undecided about whether to support Obama or John McCain. And imagine their being telegraphed the simplest of messages: "An Obama presidency will mean zero income taxes for you."

All the ifs, ands or buts in the world about Obama's proposal won't cut through the simple appeal of the prospect of not having to pay income taxes. The shameless politics behind the idea is so obvious that an Associated Press story apparently couldn't find a single economic analyst willing to say a kind word about it.

Liberal think tanks were all warning of the negative consequences. Robert Greenstein, executive director of the Center on Budget and Policy Priorities, told AP that most old folks of modest and low incomes already pay no income taxes.

"Among seniors with incomes below $50,000 who do owe income tax, a significant number have modest incomes because they are retired but possess substantial assets," Greenstein said. "Given all the problems and needs the nation faces, targeting relief to this group isn't a priority."

The Brookings Institution and Urban Institute also panned Obama's idea of giving seniors a pass on income taxes. "The proposal would exempt comparatively well off, though not affluent, senior citizens from taxes and give them a benefit not generally available to working Americans," complained the think tanks' joint Tax Policy Center. The proposal "helps only those low-income seniors who currently pay income taxes. Those too poor to owe any tax — arguably those most in need — would get no benefit."

Even the AARP is underwhelmed, noting the possibility of higher tax rates on capital gains and dividends that seniors would suffer under Obama.

Then there's the fact that senior citizens making just a tad over $50,000 would still pay a thousand dollars in income taxes — a disincentive to join the work force if they were still able to.

With entitlements such as Social Security, Medicare and Medicaid now eating up more than half of government spending, and with the total unfunded obligations of Social Security and Medicare at over $85 trillion, the last thing we need is a new entitlement by stealth for a demographic group in no need of it.