Digging deeper into Obama's 'middle class economics' plan(Read article summary)
Obama's tax cuts primarily benefit low-income single workers and families with children. Households with very high incomes and substantial capital assets would pay more. His plans would have a modest effect on middle class Americans.
An analysis lays a foundation for debate. The TPC has a new paper on the distributional effects of the President’s tax proposals. His tax cuts primarily benefit low-income single workers and families with children. Households with very high incomes and substantial capital assets would pay more.
A reaction offers some explanation. TPC’s estimates show that, overall, the President’s plan has a modest effect on middle-class Americans. But the Center on Budget and Policy Priorities’ Bob Greenstein examines TPC’s assumptions and suggests that different methodology would show the middle class doing better under Obama’s plan. He notes that TPC does not include unrealized capital gains in its measure of income, thus counts as middle class those with modest cash incomes but big bucks stashed in investment accounts. TPC also fails to include future benefits of Obama’s plan to make permanent the American Opportunity Tax Credit. Greenstein concludes that Obama’s plan does “substantially more for low- and middle-income people than a cursory examination of the TPC tables might suggest.”
When does a retreat equal a failure? TPC’s Howard Gleckman doubts that the demise of Obama’s plan to curb Sec. 529 college savings accounts necessarily signals the demise of tax reform, as some analysts suggest. Sure, survival of the 529 accounts shows how tough it is for Congress to curb individual tax preferences. But by examining a little history, such as The Tax Reform Act of 1986, Howard concludes that “the survival of these education subsidies does not mean that a rate-cuts-for-base-broadening swap will never be possible. It may mean that lawmakers need to be even more aggressive when it comes to killing off special interest tax breaks.”
Speaking of aggressive: The President’s budget would tax foreign earnings and offshore profits. His budget reportedly includes a minimum 19 percent tax on future foreign earnings of US-based companies. He also will include a 14 percent mandatory tax on about $2 trillion in stockpiled offshore profits to pay for roads, bridges and other infrastructure projects. His proposal would also impose new curbs on corporate inversions and lower the corporate tax rate from 35 percent to 28 percent, and to 25 percent for manufacturers.
Groundhog Day (again): Extender developments… or, the lack thereof. The Hill reports that “GOP lawmakers…don’t yet have a handle on how to deal with the dozens of… extenders, that were at the center of a big fight just months ago.”
Ohio’s Governor wants businesses to stay. Republican John Kasich wants to ditch income taxes for 98 percent of business owners who report their profits as personal income through sole proprietorships or other pass-through firms. They could skip their income taxes if their business has annual sales of less than $2 million. He’d also increase the state personal exemption for Ohio taxpayers earning $80,000 or less. Kasich would help pay for these tax cuts by raising taxes on cigarettes, business sales in Ohio, and oil and gas obtained through fracking. GOP lawmakers oppose such “tax shifting.”
Wisconsin’s Governor wants to borrow to pay for roads. Republican Scott Walker will not support a gas tax hike. Instead, the presidential hopeful proposes $1.3 billion in borrowingto fund transportation projects over the next two years. Some GOP colleagues are skeptical: “To continue to just borrow and spend isn't fiscally responsible,” said Assembly Speaker Robin Vos.
Did you bet on the New England Patriots in last night’s Superbowl? Congratulations. Now for the bad news: Your winnings are taxable. TPC’s Richard Auxier takes a look at the tax implications of gambling—nearly $4 billion was wagered on the game—and reminds fans that “it is up to the taxpayer to report the fistful of beer-stained twenties brought home from the neighborhood Super Bowl party.”
On the Hill this week… Treasury Secretary Jack Lew presents the President’s budget to theHouse Ways and Means Committee tomorrow, and to the Senate Finance Committee on Thursday. The Senate Finance Committee will review IRS Service Operations with IRS Commissioner John Koskinen on Tuesday. OMB Director Shaun Donovan will present the fiscal plan to the Senate Budget Committee on Tuesday. DHHS Secretary Sylvia Burwell will discuss the budget with the Senate Finance panel on Wednesday.
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