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.
But all of this largess will have to be paid for, and Obama has fingered upper-income taxpayers and business. We’ll leave details of the business tax hikes for another day. But the hit on high-income individuals would be pretty hard. The 2001 tax cuts raised after-tax income for those earners in the top one percent by more than 7 percent and for those in the top one-tenth of one percent by 8.4 percent. Under this plan, those days would end. For those who benefited so much from the Bush tax cuts, 2011 would look more like 2000 than 2008.
The pre-2001 tax rates for top-bracket earners would be restored, along with the circa 1990 phase-outs of the personal exemption and the standard deduction. On top of that, Obama has proposed capping the value of all itemized deductions at 28 percent. And, he’d raise the capital gains rate on couples earning $250,000 or more to 20 percent from 15 percent.
It will be a day or so before TPC can model the effect of all this, but the broad outlines are pretty clear. Direct tax increases for individuals making more than $200,000 or couples making more than $250,000: roughly $1 trillion over the next decade. You can add the lion’s share of more than $200 billion in business tax hikes as well, which they’ll end up paying as shareholders.
And that doesn’t include what the wealthy would pay for fossil energy under a cap and trade system for cutting carbon emissions. This is a tax increase in all but name only, and while Obama proposed few details in his budget, a full-blown plan is likely to add up to more than $1 trillion over 10 years. While the president has said the added energy costs would be rebated to low-income families, higher-earners would have to pay out of their own pockets, resulting in yet another tax increase.In case you hadn’t noticed, the Bush years are definitely over.