What Obama means by tax the wealthy

[RunInRed 16,454]

I've noticed a lot of misinformation on Obama's Tax Plan - so let's work through some of the details - the article below provides a decent summary. Personally, I don't see how any of these proposed tax changes are going to affect anyone making less than 250k (filing jointly) or 200k (filing individually).

NEW YORK (CNNMoney.com) -- Most voters are aware that Barack Obama wants to raise taxes on high-income taxpayers if he's elected president in November.

But what does the Democratic candidate mean by high-income? Who'd be affected and how? While the Obama campaign must still settle on more details about their plans, outlines are starting to emerge.

To start, Obama frequently cites $250,000 as the line between those who would be subject to higher taxes and those who wouldn't.

Indeed, under Obama's tax plan, married couples with at least $250,000 in gross income are likely to see their taxes go up if Obama is elected president.

But what about single filers? The line for them would likely be about $200,000, according to an Obama adviser.

Those groups could end up paying anywhere from several thousand dollars to tens of thousands of dollars more to Uncle Sam than they do now, according to estimates from the Tax Policy Center.

From income to Social Security to estates, we take a look at four areas where the high-income set and the very well off may be subject to a bigger tax bill in an Obama administration.

Income taxes

Obama would restore the top two income tax rates to their pre-2001 levels of 36% and 39.6%. Currently they're 33% and 35%.

Obama's proposal would also reinstate some limitations on how much of a given deduction or personal exemption high-income taxpayers may take.

However, not everyone in the top two brackets would necessarily be affected by the rate increase. Much depends on whether they've been subject to the Alternative Minimum Tax (AMT) in the past.

You're supposed to calculate your tax liability under both the regular income tax code and the AMT. If your bill under the AMT is bigger, you must pay that.

The Obama rate increase would certainly narrow the spread between the two - since the amount owed under the regular code would go up. The question is would the amount you owe because of the increase exceed your AMT bill.

"Until the regular tax starts exceeding the [AMT bill], you won't have an increase," said John Battaglia, a director in the private client advisors practice of Deloitte. "But if people are deep into AMT, it wouldn't matter."

For example, if the rate increase would mean you owe $2,500 more under the regular code, but your AMT bill is normally $5,000 more than your regular bill, you would still pay the AMT.

Payroll taxes

In addition to wages up to $102,000 - the current cap on salary subject to the payroll tax, which funds Social Security - Obama would also tax amounts over $250,000.

In other words, income between $102,000 and $250,000 would be protected.

Obama's stated goals are to better fund the Social Security program - which faces a long-term shortfall - and to make the system more progressive. Currently, the vast majority of Americans pay the Social Security tax on 100% of their income because they don't make more than the $102,000 wage cap. By contrast, very highly paid taxpayers only pay Social Security tax on a portion of their income. People who make $204,000, for example, only pay the tax on 50% of their income.

The rate at which salary is taxed for Social Security is 12.4% (half of which is normally paid by employees and half by their employers).

Obama hasn't said whether the money from wages and salaries over $250,000 would be taxed at the same rate. If it were, the person making $300,000 in gross income - $50,000 above the $250,000 watermark - would pay an additional $3,100 into the system annually (6.2% x $50,000).

We also don't know whether the benefits promised to the highest income workers would go up as a result of their paying more into the system.

"Those are details that Senator Obama would want to work out on a bipartisan basis with Congress," an Obama adviser said.

That lack of specificity concerns some tax experts. "If Obama is hinting that those making more than $250,000 would pay a higher payroll tax rate ... it would fundamentally change the way Social Security operates and run the risk of making the program look less like social insurance and more like welfare," Tax Vox blog editor Howard Gleickman wrote for the Tax Policy Center.

Investment income taxes

Long-term capital gains used to be taxed differently than dividends, which were subject to one's top income tax rate. Under the 2001 and 2003 tax cuts, gains and dividends are treated equally. Currently the most one would pay is 15%.

Both rates are scheduled to rise by 2011 - long-term gains to 20% and dividends would once again be taxed a taxpayer's top income tax rate for dividends.

Obama would continue to treat gains and dividends equally and would keep the current rate in place for everyone except high-income households.

He hasn't specified how high he'd like to make the rate, but observers expect and Obama himself has virtually said that the new rate likely would fall between 20% and 25%.

Estate tax

Finally, Obama's proposals to tax wealth are not only defined by income levels.

When it comes to family wealth, for instance, Obama favors maintaining the estate tax, which is scheduled to be repealed in 2010 for one year. But he would limit its reach.

Obama would freeze the estate tax exemption amount at $3.5 million - up from its current $2 million level and the $1 million level it's set to revert to in 2011. He would also keep the current top rate of 45%, which is below the 55% it is set to revert to in 2011.

http://money.cnn.com/2008/06/27/news/econo...taxes/index.htm

So honestly, who on this board would be affected by any of these changes. TM, CCTAU, anyone... ???

[bigsixfive 328]

Obama has said he's going to roll back the Bush tax cuts. Are you (or the article) proposing he's only rolling them back for incomes over $250K and they'll remain the same for everyone else? I've heard him say on several occasions he's rolling them back, but there's never been an exclusion to the majority of people.

Something to be weary of: the Clintons did this as well. However, $250K was reduced to $40K shortly after the tax rate was raised for "the rich".

Lets suppose this really is the case, he's only raising the tax rate for those in the $250K+ bracket. I'll pose this question: is that fair?

[RunInRed 16,454]

According to the article and what I've heard, the only changes on income taxes would be to the top two brackets:

Obama would restore the top two income tax rates to their pre-2001 levels of 36% and 39.6%. Currently they're 33% and 35%.

So to answer your question, based on his plans and what he's said, no he does not plan to raise taxes on the majority. It is also worth noting that he has proposed an additional earned income tax credit for middle income earners and the elimination of the income tax all together on seniors making less than 50k.

[TitanTiger 20,509]

Lets suppose this really is the case, he's only raising the tax rate for those in the $250K+ bracket. I'll pose this question: is that fair?

I think so. If we're going to do an income tax rather than a consumption tax, then I see no problem with it being a graduated system where people making a lot of money pay a higher percentage than people struggling on the lower end. Especially since wealth creation in this country is so tied to the money you have already. Once you attain a certain level of disposable income, it becomes a whole lot easier to get even more (it takes money to make money). Not to mention the variety of investment options that come into play currently that allow people to create even more wealth but be sheltered from taxes. It's a sad day to me when a guy like Warren Buffett who makes hundreds of millions of dollars a year pays less of a percentage of his income in taxes than his secretary that makes under $100k (likely $50,000 to $60,000).

[Justin5 20]

http://taxvox.taxpolicycenter.org/blog/_ar...11/3739543.html

TPC Looks at the Obama and McCain Tax Plans

by Howard Gleckman on Wed 11 Jun 2008 12:34 PM EDT | Permanent Link

Franco, as they say, is still dead.

In the first detailed analysis of the Barack Obama and John McCain tax plans, the Tax Policy Center has run their proposals through the Big Computer and discovered that their schemes are, well, painfully predictable. Each would raise the national debt by trillions of dollars. Obama would use the money to provide modest tax cuts to low- and moderate-income people while imposing stiff tax hikes on the very wealthy. McCain would cut taxes a bit for the working-class and a lot for the rich.

Obama, who casts himself as an out-of-the box, post-partisan politician, has put together a fairly conventional Democratic tax plan. Despite McCain’s recent claim that Obama would raise taxes for all, it turns out that middle-class families would do better under Obama (who would cut their taxes by $1000 in 2009) than McCain (who would cut them by only $300). Obama’s generosity comes at a price, however, He’d raise the national debt by a staggering $3.3 trillion over the next decade, and that includes more than $900 billion in promised revenue raisers that TPC could not verify.

McCain, who once opposed President Bush’s 2001 and 2003 tax cut as a give-away to the rich, but now embraces them, has designed a plan more consistent with the New McCain than the old. It is as Republican a plan as Obama’s is Democratic. The top 20% of taxpayers get a 3% reduction in after-tax income in 2009, while the lowest-earning 60% would get less than 1%.

The real contrast, though, is at the very top: In 2009, taxpayers making more than $2.9 million (the top 0.1%) would get a nearly $300,000 tax cut from McCain, but face a whopping $700,000 tax hike from Obama.

Keeping to the pattern of Bush-era Republicans, McCain would also go deeper into the red than Obama. Including interest, he’d increase the national debt by $4.5 trillion over a decade. To what I suppose is his credit, McCain only includes about $365 billion in unspecified revenue raisers in his plan compared with Obama’s $900 billion. Let’s just say both have wills far bigger than their wallets.

McCain, especially, says he’ll offset many of his tax cuts with spending reductions. And, in fairness, the TPC analysis looks only at taxes, not spending or health care. It also excludes two extremely controversial tax proposals—Obama’s plan to raise Social Security payroll taxes and McCain’s promise to give people the option to file a vastly simplified return. TPC could not model either because the campaigns did not provide enough details.

Finally, a quick word about baselines. Both McCain and Obama insist that we should assume that the Bush tax cuts will be made permanent before estimating what their own tax cuts will cost. This is little more than an outrageous bit of accounting legerdemain. There is, in fact, zero chance that all the Bush tax cuts will be made permanent, just as there is no chance they will all be allowed to expire.

http://taxprof.typepad.com/taxprof_blog/20...rison-of-t.html

[OldNewby 27]

JUNE 26, 2008

First Hard Numbers on Obama Tax Plan Show Dramatic Tax Redistribution

Senator Obama's tax plan is a dramatic redistribution of the nation's tax burden, according to a new Tax Foundation analysis.

In Tax Foundation Fiscal Fact, No. 132, Tax Foundation president Scott Hodge uses revenue estimates from the Tax Policy Center to show that Obama's plan would greatly accelerate the decades-long trend toward a federal government that depends for tax revenue almost exclusively on a few high-income people.

This contrasts starkly with the McCain plan, according to Hodge, which would give every taxpayer a cut and leave the current tax burden distribution approximately where it is.

"Under the Obama plan for 2009," explains Hodge, "more than $131 billion would be redistributed from the top 1 percent of taxpayers to all other taxpayers."

As a result, the top 1 percent of households would pay more federal taxes of all kinds than the bottom 80 percent of households. That lopsided distribution under Obama does include payroll taxes and other federal taxes, but it excludes the new payroll tax hike that Obama plans to levy on people making more than $250,000 because details about that plan are currently unclear.

"In other words," says Hodge, "it is at this point a cautious estimate to say that in 2009, under Obama's plan, 1.13 million Americans would pay more in all federal taxes than 128 million of their fellow citizens combined."

To put the Obama plan in historical context, Hodge cites various statistics that show the U.S. tax system evolving into one where a majority of Americans pay little or nothing:

Between 1999 and 2006, the number of tax filers who had no income tax liability after taking advantage of their credits and deductions grew from 30 million to nearly 44 million.

Looking at all federal taxes combined, the CBO says that between 1990 and 2005, the tax share of the bottom 80 percent of households dropped from 42 percent of the total to 31 percent. Meanwhile, the tax share of the top 1 percent of households rose from 16 percent to 28 percent.

In 2004, the nation's tax and spending policies redistributed more than $1 trillion in income from the top 40 percent of American households to the bottom 60 percent of households.

Hodge points out that in contrast to much campaign rhetoric about helping low- and middle-income people, Obama's plan redistributes more dollars from the top 1 percent to the rest of the top 20 percent (those earning roughly $93,000 to $192,000 per year) than to any of the lower-earning quintiles of taxpayers.

Hodge acknowledges that some Americans may cheer this dramatic dependence on the highest earners, but he says the shift should be part of a larger national discussion asking questions such as:

What is the long-term effect on the economy if so few households shoulder such a large share of the tax burden?

When a majority of Americans are paying so little for government, will that majority then demand even more services than they would have otherwise?

Can a tax system so focused on redistribution be compatible with economic growth?

The new study, "Hard Numbers on Obama's Redistribution Plan," is available online at http://www.taxfoundation.org/publications/show/23319.html.

link: http://www.taxfoundation.org/news/show/23327.html