Wealthiest to take tax hits
WASHINGTON – President Barack Obama’s $3.55 trillion budget proposal includes tax cuts for some and a wide range of increases for others. Though more details are expected in April, here’s a first look at how it may affect you.
Q. Who would get a tax cut under the plan?
A. The budget would make permanent the Making Work Pay tax credit for low or moderate income earners. Single taxpayers are eligible for a $400 credit while married couples filing jointly are eligible for double that amount. The credits phase out for individuals who make $75,000 or more, or $150,000 for couples.
The tax credit, meant to offset some or all of a worker’s payroll taxes, was signed into law for two years as part of the president’s economic stimulus package. The new budget would make it permanent.
Q. What about small businesses?
A. For them, the capital gains tax would be eliminated.
Q. Whose taxes would go up?
A. The wealthiest Americans would take a hit. Bush administration tax cuts for the highest-earning taxpayers, such as families earning more than $250,000 a year, would be allowed to expire in 2011. The highest income tax rate would revert to 36 percent for individuals and 39.6 percent for married couples, from the current high rate of 35 percent.
Q. Are itemized deductions affected?
A. Yes. The Obama budget would reduce the rate that the highest-earning Americans use to determine their itemized tax deductions. Currently, wealthy Americans can write off 35 cents for every dollar of their deductible expenses. Obama would reduce that to 28 cents.
Q. How would capital gains taxes change?
A. Capital gains taxes on the highest-earning Americans would increase to 20 percent from the current 15, and limits would be placed on the deductions they could take on mortgage interest.
Q. Can you give examples of how the plan might affect a wealthy person?
A. Clint Stretch, senior principal for tax policy at Deloitte Tax, crunched the numbers and determined that under the president’s plan, a single person with no children and with $500,000 in household income would pay an additional $19,200 in taxes. A married couple with the same income and two children under 17 would see their taxes go up by $11,300.
Q. What about businesses?
A. Many businesses would also see their taxes rise. The administration wants to raise about $210 billion over 10 years from tightening tax enforcement for U.S. companies with international operations – as well as from tax policy reforms.
Q. What about taxes on energy companies?
A. Oil and gas companies would see their taxes rise over the same period by about $31.5 billion as the administration eliminates various tax preferences and places an excise tax on drilling in the Gulf of Mexico. And while it’s not technically a tax, administration officials predict the cap-and-trade system the administration would implement to reduce greenhouse gas emissions by businesses would raise $645.7 billion over 10 years.
Q. Who else is affected?
A. Another big change would affect hedge funds whose managers’ incomes are now taxed at the lower capital gains rate of 15 percent. Obama would make their earnings taxable at the ordinary income tax rate, raising $23.9 billion over 10 years.
Q. What’s the general philosophy behind the changes?
A. Obama believes that Bush tax cuts skewed to higher-earning taxpayers aggravated income inequality. “The ladder into the middle class and beyond has become harder and harder to climb,” according to the president’s budget document. The tax changes are meant to address, if not reverse, that trend. Other changes are being made to address increased spending for such programs as health care.