The Obama Tax Plan: Winners and Losers
This won’t take long. If you are blue-collar wage earner, a low-income family with children, or a college student, you should love President Obama’s tax plan. On the other hand, if you are making more than $250,000, you may not be so happy: By 2011, you'd be paying a lot more tax than you've gotten used to over the past few years.
To the surprise of absolutely nobody, Obama’s budget includes many of the tax changes he promised during the campaign. He’d make permanent many of the “temporary” tax cuts in the just-passed stimulus. Working families would continue to get an $800-a-year tax cut long after the recession ends, and they’d continue to enjoy the benefits of a more generous Earned Income Credit and a more refundable child credit. Obama is proposing tax reductions for low- and moderate-income families of almost $800 billion over the next decade.
But all of this largess will have to be paid for, and Obama has fingered upper-income taxpayers and business. We’ll leave details of the business tax hikes for another day. But the hit on high-income individuals would be pretty hard. The 2001 tax cuts raised after-tax income for those earners in the top one percent by more than 7 percent and for those in the top one-tenth of one percent by 8.4 percent. Under this plan, those days would end. For those who benefited so much from the Bush tax cuts, 2011 would look more like 2000 than 2008.
The pre-2001 tax rates for top-bracket earners would be restored, along with the circa 1990 phase-outs of the personal exemption and the standard deduction. On top of that, Obama has proposed capping the value of all itemized deductions at 28 percent. And, he’d raise the capital gains rate on couples earning $250,000 or more to 20 percent from 15 percent.
It will be a day or so before TPC can model the effect of all this, but the broad outlines are pretty clear. Direct tax increases for individuals making more than $200,000 or couples making more than $250,000: roughly $1 trillion over the next decade. You can add the lion’s share of more than $200 billion in business tax hikes as well, which they’ll end up paying as shareholders.
And that doesn’t include what the wealthy would pay for fossil energy under a cap and trade system for cutting carbon emissions. This is a tax increase in all but name only, and while Obama proposed few details in his budget, a full-blown plan is likely to add up to more than $1 trillion over 10 years. While the president has said the added energy costs would be rebated to low-income families, higher-earners would have to pay out of their own pockets, resulting in yet another tax increase.
In case you hadn’t noticed, the Bush years are definitely over.
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That's what it took to get enough of the other party on board with it. They hope that by delaying it's implementation, they will gain enough seats by then to re-evaluate it for themselves.
There are also some logistical issues involved that do take some time to implement. Although 2011 is a little far out even for most of those.
Current economic conditions have put the federal government under great pressure and strain. On one hand you have failed corporations, who are too big to fall and the government has to rescue them. So the government is in a position of hostage by big corporations. On the other hand, you have various programs that need financing, states that are in trouble and need financial help from the government, various infrastructure and other programs (news ones as well) and not enough money. Makes sense to start prioritizing and also start thinking how to control these costs and cut back on some of them, so we don’t wind up in a situation when the government simply needs to print more money, in order to meet its obligations.
Income taxes are passed to consumers in the same way. All such taxes are business taxes.
Carbon taxes are only passed on if the same amount of carbon is used. That's the point.
Yard and home workers will only have their income reduced if families making over $250,000 see more utility in watching their kids or cutting their grass than in investing funds in the stock market or other savings vehicles – or in eating out more. Given the fact that the market has declined only 54% of its total value (the tech boom was more and the Great Depression was 89%), it would seem that most wealthy people will pay someone to cut their grass.
I think we have arrived at the REAL ISSUE and your desire to remain anonymous. You are not really worried about the gardners and housekeepers, but about the commissions lost to brokers who will be paying taxes with the money brokers want to be paid to play with. An analogous situation was the Social Security Personal Accounts movement, which would not have done the middle class much good, but would have been a bonanza for the brokerage industry.
Is anyone in California building houses? For those that are, are tax benefits really an issue preventing buying a bigger house? I doubt it.
Yes, if one spouse makes over $200K, it is rare that the other spouse has an income in the same zone.
With two middle class earners of between $40K and $100K each, you may see two similar incomes so doubling makes sense. A single income of $200,000 is a bit high to escape high taxes, but $125,000 is not an insanely high income for an individual. If you can prove it is, convince Charlie Rangel and he will lower the floor to that level.
Can someone please help me understand the discrepancy between 200k for individuals and 250k for families? Why not 125k/250k or 200k/400k? The numbers seem very arbitrary and punishing to the family vs individual filer. Please help me understand the logic?
- Business taxes will be passed to consumers
- Carbon taxes are not only on gasoline and energy, but all goods since it costs energy to move products to stores, light the stores, and so on. Again costs passed to consumers
- Home workers, yard workers and the like of the “rich” ($250K for a couple in silicon valley is middle class) will have either wages reduced or jobs eliminated
- Tax deduction on mortgage interest for high earners will create further drag on housing in most areas of CA and other high-cost states. This part of the market is already under huge strain due to severe limits on “jumbo loans” , which are not covered in any way by government support programs
In short this program will hurt “working families” just plenty.
The only comment I have is why wait until 2011. What's wrong with 2009, or at the very least, 2010?