Obama Clarifies Tax Plan to Rebut McCain

ABC News' Teddy Davis, Hope Ditto, Arnab Datta, and Ferdous Alfaruque Report:

Facing criticism from John McCain that his tax plan constitutes "welfare," Barack Obama recently added a work requirement to one of his proposals.

"They started saying this was welfare," said Obama adviser Austan Goolsbee. "So, just so they would absolutely not be able to say that, we decided that for the last two percent we'll simply add a work requirement."

Goolsbee discussed the change to Obama's universal mortgage credit while debating McCain adviser Douglas Holtz-Eakin at the Council on Foreign Relations on Tuesday.

The purpose of Obama's 10 percent universal mortgage credit is to aid taxpayers who do not itemize when filing taxes. The Obama campaign estimates that it would provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.

Watch the video here.

Goolsbee referred to the number of non-working Americans who would benefit from the original understanding of Obama's plan as an insignificant "sliver" when compared to the much larger number of working Americans who would benefit from Obama's plan.

Although the number of non-working beneficiaries would have been just a "sliver" under the original understanding of Obama's plan, Goolsbee said the Democratic nominee's economic team decided to add a work requirement to it in order to block McCain from being able to characterize any aspect of his plan as "welfare."

"When did this change? I'm just curious," an incredulous Holtz-Eakin asked Goolsbee.

"About two weeks ago," replied Goolsbee, adding that when the proposal was announced in September 2007, 98 percent of its benefits went to workers.

The work requirement on Obama's universal mortgage credit was never announced publicly, prompting Holtz-Eakin to suggest that it was just made up for purposes of the CFR debate.

"I think they just made it up," Holtz-Eakin told ABC News. "They will say anything in the moment. This is like trying to pin Jello to the wall."

During a Tuesday conference call with reporters, Holtz-Eakin mocked Goolsbee's claim that Obama could have changed his plan two weeks ago in response to McCain attacks that did not start until after Obama met with Joe "The Plumber" Wurzelbacher nine days ago.

"What we saw today was just another example of the Obama campaign being willing to say potentially anything in order to avoid the tough questions of the moment," said Holtz-Eakin.

Goolsbee told ABC News that he was not exactly sure when the conversation among Obama economic advisers took place. He said it's possible that it did not take place until a week ago when McCain started hammering Obama on the issue. Goolsbee said it was also possible that it happened earlier since some conservative columnists were criticizing Obama on this point before the Republican nominee started making the line of attack himself.

Goolsbee argued that his Tuesday reference to adding a work requirement referred not to a change in policy but rather a change in what the Obama campaign was making explicit.

"Our thing has never been welfare," said Goolsbee. "It was always our intention that there was a work requirement."

Asked how the Obama campaign made its work requirement on the mortgage credit explicit before Tuesday, Goolsbee said, "We made it explicit among ourselves," adding that he thinks Obama economic adviser Jason Furman might have made this point to reporters in recent interviews conducted on background.

Goolsbee suggested that one of the reasons why the Obama campaign did not previously feel a need to make its work requirement explicit is that the refundable tax credits which exist in current U.S. tax law -- the Earned Income Tax Credit, the child credit, and the health coverage for displaced workers credit -- are all tied to either current work (in the case of the first two) are recent work (in the case of the third).

Goolsbee correctly noted that Obama's other refundable tax credits were clearly tied to work. An individual must work in order to qualify for Obama's making-work-pay credit, an individual must have earnings from a job in order to benefit from Obama's saver's credit, parents must work in order to benefit from Obama's refundable child care tax credit, and college students must perform community service in order to benefit from Obama's college tax credit.

Goolsbee also said McCain's criticism smacks of "hypocrisy" since a refundable tax credit -- with no work requirement -- is a core component of the Arizona senator's health plan.

Now that Obama has made clear that all of his tax credits are work-related, Holtz-Eakin contends that Obama has to defend the decision to strip the universal mortgage tax credit from workers who lose their jobs.

"That puts him in a position of having policies which say, 'You get laid off . . . good luck,'" said Holtz-Eakin.

Goolsbee rebutted Holtz-Eakin's criticism by saying that someone who lost his or her job would not immediately lose the universal mortgage credit. The worker could still qualify by working any time in the last taxable year or by having a spouse who works.

A tax expert with an organization which has scored the candidates' proposals said he was unaware of the work requirement on Obama's mortgage tax credit. At the same time, he agreed with Goolsbee that Obama's other refundable tax credits, as well as ones in existing law, are clearly work-related.

"They might have been thinking this all along," said Roberton Williams, a principal research associate at the non-partisan Tax Policy Center. "But anytime you clarify something in a way that protects you, you are bound to draw criticism from your opponent."

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