Tax day 101: How is the tax code changing under Obama?
Obama has showered new tax perks on the poor and middle class while pledging to maintain many of the Bush tax cuts. But his tax code largess stops at wealthy households.
Barack Obama campaigned for president as a tax cutter – and in his first year in office, that's what he has been for the vast majority of Americans.Skip to next paragraph
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From the "making work pay" tax credit to incentives for first-time home buyers and for people who invest in energy efficiency at home, Mr. Obama has showered new tax perks on the poor and middle class while pledging to maintain many of the Bush tax cuts.
But where President Bush reduced tax rates for people in all income brackets, Obama set a cutoff line for his tax-code largess: Households earning more than $250,000 need not apply.
Tax hikes on those high-income Americans are a central plank in Obama's planned budget for 2011, which would allow the top-tier tax rates to revert to Clinton-era levels (a top income-tax rate of 39.6 percent). New taxes on those same high earners figure prominently in Obama's recent health-care reform legislation. The goal is to raise revenue to provide health insurance for more Americans.
It may be just the beginning of a broader shift in tax policy under Obama. The question now is: What next, as he faces pressure to reduce federal deficits? Will he raise more taxes, in ways that extend beyond the rich?
Both before and after the 2008 election, Obama and his team voiced commitments not to raise taxes on the vast majority of Americans. Yet the president recently set up a fiscal commission, with a mandate to consider all the tax and spending-reduction options.
Some Republicans say Obama's health-care reforms already impose new burdens that spread beyond the wealthy.
Progressive vs. flat tax
What Obama has done so far reflects party-line ideological divides: The president and fellow Democrats favor a more progressive tax system, in which wealthier Americans pay substantially higher rates than the middle class. Although his team includes fiscally centrist advisers schooled under Clinton Treasury Secretary Robert Rubin, Obama has also shown a penchant for using the tax code for various social goals, from helping to finance college education to expanding the earned-income tax credit.
Republicans lean toward a "flatter" tax-rate structure – often advocating an outright "flat tax."
But with federal deficits running high, simple economic pressures are also bearing down. The Obama administration has opted to spend a lot on short-term stimulus to bring the economy out of recession. But the risk is that fast-rising federal debt will dampen economic growth in the years ahead.
Obama's budget plan currently envisions the interest on the public debt soaring from a roughly $188 billion expense in 2010 to $840 billion in 2020. Unless deficits are tamed, that runaway-debt scenario would continue until something – such as a Greece-style debt crisis – stopped it.