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.    more »

To help pay for health reform, President Obama’s wants to limit deductions for high income taxpayers. He’s on to something, but I’ve got some questions about what he’s doing. This tax increase, sure to be politically contentious, would kick in starting in 2011 and raise about $318 billion over 10 years. That sounds like a lot, but in fact it would only fund about 20 percent of the total cost of the health plan Obama outlined in his presidential campaign. TPC estimated the price of that plan at $1.6 trillion over 10 years.    more »

For years, Congress has preferred to use tax incentives rather than direct spending to encourage investment. Thus, while a home buyer may not care whether she gets a tax credit or a check from HUD, for example, Washington seems to have concluded that the tax subsidy is good while the check from HUD is bad. Never mind that both are, in reality, spending. This bit of political ledgerdemain has made it increasingly difficult for lawmakers to choose the most efficient way of delivering subsidies. But surprisingly, the current economic mess may be bringing some clarity to this issue.    more »

Whatever his intentions, President Obama’s missed an opportunity at his fiscal summit yesterday. It is critically important for Washington to finally confront the long-term deficit. And Obama sent an important symbolic message by throwing this shindig. But the timing was all wrong. Right now the public and financial markets are obsessed with only one economic issue: the recession. With those fears so dominant, whatever was said at the White House yesterday will be quickly forgotten.    more »

Most American think that the tax rate on capital gains for most taxpayers is 15 percent. But that is far from the whole story. For example, gains from the sale of collectibles, such as art or wine, are taxed at higher rates—though, for taxpayers subject to marginal rates of 28 percent or above, still less than wages or interest are taxed. Then there are the gains on the sale of stock in a qualifying “small” business (with assets under $50 million). These profits are taxed at 14 percent—only a bit lower than the normal 15 percent rate. And even that advantage all but disappears for those small business owners hit by the Alternative Minimum Tax. For them, the effective capital gains rate is 14.98 percent.    more »

The stimulus bill President Obama signed on Tuesday concentrates tax cuts and payments on lower-income households—but only if you ignore the entirely misplaced patch for the alternative minimum tax (AMT). In our report card on the bills’ tax provisions, we panned the patch as “neither timely nor targeted” and making “no sense as economic stimulus.” We knew it crowded out provisions that might have helped boost the economy. But a closer look shows it also made the tax provisions less progressive, shifting benefits to higher-income households who are much less likely to spend their tax savings and stimulate economic activity.   more »

Budget watchers Alan Auerbach and Bill Gale have just finished a new paper on the nation’s long-term fiscal future. I’ll get to the numbers in a second, but their conclusion could hardly be more grim: “The federal fiscal outlook is both bleak and uncertain.” And if that doesn’t get your attention, try this: Auerbach and Gale note a “discernable uptick” late last year in market fears of default in 5-Year Treasury notes. Have a nice day.    more »

co-authored with Mark Greenberg, Georgetown Center on Poverty, Inequality, and Public Policy During the Presidential campaign, Barack Obama talked about the Making Work Pay tax credit as being an offset to the payroll tax on the first $8,100 of earnings for each worker (6.2% * $8,100 = about $500). During the campaign, Tax Policy Center analyzed the credit in the context of individual earnings – even in the case of married couples. If only one partner worked, we assumed the maximum credit for the couple was $500 and if two partners worked, TPC assumed the maximum credit increased to $1,000. Not so, as it turns out.    more »

Many of the tax cuts in the stimulus bill President Obama signed today are built on the legislative fantasy that they will expire after a year or two. The reality is that Congress and Obama are likely to continue these tax breaks long after the economy recovers. And the price of doing so will be staggering: Making just four of the most popular individual tax cuts in the bill permanent would reduce federal revenues by more than $1.7 trillion from 2010 through 2019. They'd be more than three times more generous than the bill’s spending initiatives, which are expected to cost a mere $500 billion.    more »

The one tax issue that still seems unresolved in the stimulus debate involves a provision that would let businesses convert current losses into cash. The measure would allow a firm that is losing money in today's recession to redo up to five years worth of tax returns. That way it could use those losses to get a refund of some taxes it paid in past years. The ability to carry back these Net Operating Losses for up to five years could be an important boost to cash-strapped companies. Like many individuals, businesses desperately crave cash now. Many cannot borrow in the constipated credit markets, their sales are plummeting, and a little more operating cash may be the difference between having to lay off more workers or keeping them on the job. The NOL carryback is an easy way to get quick money to these businesses.    more »

House-Senate conferees have just about wrapped up a compromise $789 billion stimulus plan that should land on President Obama’s desk by the weekend. While we do not yet have bill language or revenue estimates, published reports suggest that about one-third of the compromise measure is made up of tax cuts. For the most part, the final version of those tax breaks is worse than the initial House proposal. Most troublesome, this measure waters down two important proposals that would have gotten money into the economy rather quickly and instead adds a $70 billion Alternative Minimum Tax patch that will do little to boost spending—the goal of any good stimulus.    more »

The press has widely reported that the difference between Senate and House stimulus bills is mostly about tax cuts (Senate) versus spending (House). That's wrong. The main difference is about who runs the spending programs-the IRS or program agencies In fact, the Senate bill includes some major expansions in spending--notably, subsidies for car and home buyers--and cuts in others, such as aid to state and local governments. The new Senate spending was presented as tax cuts, but that is simply window dressing. The add-ons are spending programs, and particularly ineffective ones at that.    more »

The Senate has made the stimulus worse. At a cost of $130 billion, the bill the Senate passed today added three tax provisions that would do little to boost consumer spending--the key to digging us out of our economic hole The stimulus losers: patching the Alternative Minimum Tax for another year ($70 billion), giving a new tax subsidy to homebuyers ($39 billion), and providing new car buyers with a new tax break ($11 billion).    more »

The compromise stimulus bill likely to win Senate approval attracted a handful of Republican votes by adding tax cuts and trimming spending. Most of the spending cuts came in programs intended to aid states directly, including education assistance. However, with 46 states now in the red, and states expected to run cumulative deficits of more than $350 billion through 2011, that choice seems odd. Keeping state and local governments from raising taxes or laying off workers to meet their balanced budget requirements should be a top priority of any stimulus. Keeping income and sales taxes from rising in the heart of the recession would, at the very least, keep things from getting worse. When the New York Times surveyed economists in December, about two-thirds of economists across the political spectrum endorsed the idea of increasing federal spending to maintain current state budgets or expand education.    more »

We graded many of the provisions in the Congressional stimulus bills, but resisted producing a bottom line. New York Times columnist, David Brooks, however, used our grades to calculate an overall grade point average (GPA) in today’s paper. Brooks calculated, based on our grades, that the Senate plan scores a 2.26 and adds that it's "not exactly the kind of report card you’re proud to take home to momma." Using the Brooks methodology the House plan would earn a 2.4. You wouldn't brag about that either.   more »