Obama's Tax Increases on the Poor and Disabled

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I received a forwarded email about the various ways Obama is increasing taxes on all the people he said he wouldn't raise taxes on, and I'm curious if someone who actually knows something about the details of this stuff could confirm or refute any of it. Some of this is from not getting the Bush tax cuts renewed, but some of it is just plain new taxes, even on some things never taxed before.

According to the email, the inheritance tax, called by its opponents the death tax (which I think is an apt name, because you're basically being taxed for dying and ceding your money to your heirs) is returning in full force. I pretty much knew that already. I didn't know any of the other things (assuming they're true).

I'm not surprised to see the top tax rate increasing from 35% to almost 40%. But increasing the lowest rate from 10% to 15%? Surely there are people who make less than $200,000 a year who are in the lowest tax bracket. In fact, many people in the lowest tax bracket struggle to make ends meet and now are being expected to carry even more of the load, something that goes against the tax philosophy of both the Republican and Democratic parties. If the current president and congressional leadership are behind tax increases for the poor, then it's almost fair to say that Obama and company are inviting the tea party to unseat the Democratic congressional leadership, even aside from his campaign promises not to raise taxes for anyone earning under $200,000 and their repeated insistence that the stimulus package could be paid for without increasing taxes.

Another item is that the so-called marriage penalty is returning. You basically pay higher taxes for being married, in effect, at least if certain conditions are also true, since there are a couple things that in some cases counterbalance the marriage penalty (e.g. if only one spouse receive income, the spouse with no income significantly lowers the taxes of the working spouse, but the conditions where the marriage penalty increases the taxes of a couple are common enough, as I understand it).

The child tax credit is being halved.

Dependent care and adoption tax credits are being removed.

Tax-free accounts for medical care or special needs children will be removed or significantly diminished. The special needs trusts we're planning to get for the boys will be capped off at $2500. According to the email I received, this will be especially cruel and onerous for parents of special needs children. We're in fact pursuing getting accounts for the boys so we can earmark tax-free money that won't count against them for qualifying for SSI.

The alternative minimum tax is expected to kick in for 28 million families next year instead of the 4 million who had to pay it last year. These are people who didn't make enough money to pay any taxes last year. In other words, it's a tax on the poor. I've seen bi-partisan complaints about this tax, insisting that it simply be removed, and yet somehow they've snuck in provisions to expand it sevenfold?

There are lots of tax hikes and removal of tax breaks on small businesses, not the big business Obama keeps saying he wants to "get" (all the while secretly giving them a lot of what they want).

Education deductions from tuition and fees will be removed, and student loan interest deductions are being cut.

You will no longer be able to pay money from and IRA to a charity and have it be a tax deduction.

Health insurance benefits paid by an employer are going to count as income and be taxable. This will be enough to bring many people up a tax bracket, but it will increase the gross income significantly even if it doesn't.

Now this is a forwarded email, so it's almost certain that not everything in it is correct, but I'm curious exactly which things are and which aren't and if I'm interpreting them correctly. I didn't expect he would even have a remote chance of keeping his campaign promises on taxes, and I never thought he intended to anyway, but this goes significantly beyond what I expected. If this is all correct, then President Obama is just asking for people who voted for him to complain that he betrayed them. His chances at another term would be nearly zero if the 2012 election were going to be in April instead of November. This may not turn out to affect the 2010 elections as much, since they conveniently delayed the effect until 2011 for most of these changes.

8 Comments

Don't know about all of these, but I know a few of these are inaccurate.

Alternative Minimum Tax (AMT): it's not a tax on the poor. It was started as a way to tax the rich who had found so many deductions that they weren't paying anything. However, they didn't index it to inflation, so every year more and more Americans would be hit by it if Congress didn't enact a temporary fix. Congress refuses to permanently fix it because it would make the deficit projections look even more awful than they already do.

Taxing Health Insurance Benefits: sadly, this won't be happening, even though it's one of the best things we could do to fix our dysfunctional health insurance system.

They expire in 2010 because that's what the law says according to the Senate's Budget Reconciliation Procedure which *the Republicans* used to get the cuts passed in the first place.

http://pushingprose.blogspot.com/2010/08/one-thing-to-clarify.html

Mike, the Republicans were willing to use a commonly-used procedure in budgetary matters, even if it had the downside of requiring an expiration that wouldn't have been necessary if the Democrats had gone along with the cuts in large enough numbers. It's a little strange to treat it as if the expiration was their idea. It was forced on them by the other party, a party who isn't renewing the cuts and is therefore morally responsible for their inaction. Whether you think the cuts are good or bad, it's on the Democrats now to renew them or not, and they've chosen not to renew them. It's not the Republicans' fault that the party in charge now isn't renewing any of those things.

If what you're insinuating is that the Republicans used the budget reconciliation process that they've recently been complaining about, then you're way off base. Their complaint was not that reconciliation is immoral or against congressional rules or anything like that. It's that such a process was only ever designed for the budget and shouldn't be used for major legislation like the health care bill. There's no inconsistency there.

Stephen, all I'm saying is that the AMT is a problem and that both sides admit it. They just won't do anything about it, and it seems as if the problem is getting much worse in a very short time. I'm not sure why that is. I can't believe 4% to 28% is just from the inflation that occurs in one year, but maybe the numbers in the email are wrong. In any case, the people getting hit by this are people with lower and lower incomes each year. It's well into the middle class by now, and a number of them are struggling even before they'll get hit by it. The claim in the email is that some people who don't currently pay taxes at all will get hit by this in 2011's taxes. I don't know if that's true, but both sides have admitted that it's a problem, and you did point out the reason it hasn't changed. I consider that a huge moral fault on the part of the Democratic leadership and those in their party who are going along with such nonsense.

But they do always fix the AMT, just not permanently, and unless there's some reason to believe this pattern has changed (and any politician who wants to keep his seat has a huge incentive to fix it), then I'm sure they'll do it again this year. So I'd hardly consider it a huge moral fault if they always do fix it but just in continuous short increments rather than permanently. If anything, the biggest fault would lie with their honesty.

A friend of mine sent me a site with nice charts depicting pre-Bush, Bush, and Obama levels for a lot of these items, and it does seem to indicate that the email is wrong about a lot of its claims. The main problem seems to be that it's detailing what will expire if not renewed but not detailing what Obama plans to do. In some cases he will renew the Bush levels, and in others he's planning something in between pre-Bush and Bush levels.

In specific, it looks like the 15% on the lowest bracket is false too, as is the married standard deduction going back to pre-Bush non-doubling of single standard deduction. There are also people in the 33% bracket (that Obama is making 36%) who will move to the 28% bracket, so they get decreased rates. Capital gains is going up from Bush but not to pre-Bush levels. The child tax credit stays at Bush levels. The refundable child tax credit is even easier to get for a greater percentage of income than under Bush. The AMT is changing, but I don't know what the exemption level means there, so it may be better or worse than it's been. The estate tax is actually going to a lower rate, but it will be applying to anything over $1 million instead of anything over $3.5 million. This assumes the site is reliable and that nothing has changed since the end of May. The first assumption is probably true, but a lot might have changed in a couple months when it comes to passing legislation.

If a forwarded email contains something surprising, then it's probably false, or very near to it. If it too neatly lines up with either side's talking points, and doesn't give direct, easily verifiable, citations, then it's probably false.

Jeremy, that website you link has pretty nifty comparisons. The only thing I think you misread was that the death looks to be both more generous in rate and exemption than the pre-Bush tax. Obama's policy kicks in at 3.5M and is at the lower 45% rate for amounts over that compared to the pre-Bush rate of 55% for amounts over 1M.

Does anything on that email still stand? Is it worth investigating further?

I hate these e-mails. No one ever VERIFYS the information they have before passing them on. As a result, when somethings brought up in public, people spout these non-sense things they read in an e-mail but never verified, totally derailing any chance for meaningfull conversation without dragging them to a computer and doing a google search to debunk on every silly thing they claim. "What you mean Obama really was born in Hawaii? "

It needs to stop. Never, ever foward ANYTHING without verifying every piece of information it contains. Fowarding these things without doing so is iresponsible and down right unethical. You have google, either use it, or don't foward it.


Right, which is why I posted some of the claims and asked if they were true. It turned out it was a mixed bag, but the author was right about most things on the false premise that everything in the 2002 tax cuts was expiring and not being renewed.

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