MCCAIN CAMPAIGN CONFUSED ABOUT PAYROLL TAXES…. For about a week now, Republicans have been trying to make the case that Barack Obama is exaggerating his tax cut proposal. Obama has argued that his policy would give 95% of Americans a tax cut. Republicans have said this is impossible, since more than a third of American workers don’t make enough money to pay any federal income taxes.

I’d hoped the argument was so obviously dumb that it would just quickly disappear, its proponents humiliated, but no such luck. John McCain made the claim a few days ago, the far-right editorial page of the Wall Street Journal followed suit, right-wing blogs have run with it, and today, the McCain campaign’s Douglas Holtz-Eakin made the same argument to reporters.

The problem is, these folks seem surprisingly unfamiliar with payroll taxes. Robert Gordon and James Kvaal set the record straight.

It is true that Obama has proposed several tax credits that include families who earn too little to owe income taxes, a group that include about half of families with children. But many of these families work and pay thousands of dollars in other taxes. For example, a family of four must earn about $25,000 before owing income taxes — but they must pay payroll taxes on the first dollar they earn. Indeed, Obama’s biggest refundable credit is designed to cushion the blow of payroll taxes. Refundable credits are also often the most economically efficient way to help families, according to now-CBO director Peter Orszag. Maybe that’s why McCain’s own health care plan uses refundable credits. But McCain is echoing Phil Gramm‘s and Newt Gingrich‘s old claim here that tax credits for low-income workers amount to welfare. The Wall Street Journal editorial page charmingly referred to people too poor to pay income taxes as “lucky duckies.” As a presidential candidate, George W. Bush “sandbagged” these Republicans by defending the earned income tax credit. Now McCain is standing with Gramm and Gingrich, to the right of Bush.

Why the McCain campaign sees this as a winning argument remains a mystery.