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.

By , Staff writer

  • close
    President Barack Obama speaks about tax reform in the Grand Foyer of the White House in Washington, on May 4.
    View Caption

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.

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.

Recommended: 5 steps to bipartisan cuts in Medicare – and the deficit

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.

What Obama might do next

The budget gap is poised to remain so wide, many tax experts say, that both spending cuts and tax hikes will be needed. More taxes on just the "rich" are unlikely to do the trick.

"We are going to be desperately seeking revenue," predicts Rosanne Altshuler of the Tax Policy Center in Washington, which does nonpartisan research on tax policy.

In a recent analysis, she and colleague Roberton Williams tested several ways to reach Obama's goal of bringing the budget deficit down to 3 percent of gross domestic product by 2015. To do it just by raising income taxes on those earning more than $250,000, the tax rates on those top earners would have to rise to 77 percent of income.

"The rates would be so high as to make collecting the taxes impossible," Ms. Altshuler says.

However, a dramatic break with campaign pledges could be politically damaging to Obama or any politician.

More like Europe?

One possibility is that, if Obama calls for ramped-up federal revenue after congressional elections this year, his plan won't involve big hikes in middle-class income taxes. One option under review is a new value-added tax (VAT), similar to a national sales tax.

Many European nations have such a tax. Both fans and foes of the VAT say it's not surprising that as the US edges more toward Europe in its health-care entitlements, it will ponder tax-code parallels as well.

"My own guess is that the United States will likely raise taxes substantially, and taxes as a percent of GDP will reach levels never seen in U.S. history (although common in Europe)," Harvard University's Gregory Mankiw, who served as Mr. Bush's top economist, wrote in a recent online posting.

Health-care controversy

As for health care, Obama's legislation includes a range of taxes that are intended to keep the reforms from adding to federal deficits: higher capital-gains and Medicare taxes on the rich, a tax on high-end insurance coverage offered by employers, and levies on the health-care industry, including drug and medical-device manufacturers.

The health-care law also includes penalties on businesses (except very small ones) that don't offer health plans for their employees, as well as on individuals who don't have health insurance.

Critics say some of the health reform provisions amount to backdoor taxes on middle-class Americans. The White House argues that, overall, the reform package will reduce health-care costs for millions of families without adding directly to their tax burden.

Also in Tax Day 101:

Part 1: Top mistakes to avoid on your tax return

Part 2: Who pays no income taxes on April 15?

Part 3: How to file a tax extension form to the IRS

Part 4: How is the tax code changing under Obama?

Part 5: Are some states driving people out with high state taxes?

Part 6: How some millionaires can owe no taxes

Part 7: The tax code needs a fix – but exactly how?

Part 8: 42 excuses you can't use to avoid filing IRS forms

Part 9: OK, now it's time to plan for next April 15

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.




eZ debug

Clear cache:

Quick settings:

Timing: Jul 09 2014 07:33:17
Script start
Timing: Jul 09 2014 07:33:17
Module start 'content'
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: path in /var/www/ on line 158
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: path in /var/www/ on line 175
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: path in /var/www/ on line 158
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: path in /var/www/ on line 175
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: meta_class_identifier_ms in /var/www/ on line 111
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: meta_class_identifier_ms in /var/www/ on line 111
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: meta_class_identifier_ms in /var/www/ on line 111
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: meta_class_identifier_ms in /var/www/ on line 111
Notice: PHP: E_NOTICE Jul 09 2014 07:33:17
Undefined index: meta_remote_id_ms in /var/www/ on line 1028
Warning: eZTemplate:def @ extension/csm_base/design/csm_design/templates/content/datatype/view/ezbyline.tpl:10[1] Jul 09 2014 07:33:17
Variable 'story_source' is already defined.
Timing: Jul 09 2014 07:33:17
Module end 'content'
Timing: Jul 09 2014 07:33:17
Before parse_includes
Strict: PHP: E_STRICT Jul 09 2014 07:33:17
Non-static method MugoViewExtras::get_view_extras() should not be called statically, assuming $this from incompatible context in /var/www/ on line 37
Warning: eZTemplate:def @ extension/csm_base/design/csm_design/override/templates/extra/archive.tpl:21[1] Jul 09 2014 07:33:17
Variable 'view_extra_node' is already defined.
Timing: Jul 09 2014 07:33:17
After parse_includes
Timing: Jul 09 2014 07:33:17

Timing points:

CheckpointElapsedRel. ElapsedMemoryRel. Memory
Script start 0.0000 sec0.0187 sec 1,285.9922 KB1,162.1172 KB
Module start 'content' 0.0187 sec3.0876 sec 2,448.1094 KB13,006.0469 KB
Module end 'content' 3.1062 sec0.0237 sec 15,454.1563 KB412.5000 KB
Before parse_includes 3.1299 sec0.0505 sec 15,866.6563 KB278.5781 KB
After parse_includes 3.1804 sec0.0010 sec 16,145.2344 KB-189.7500 KB
End 3.1814 sec  15,955.4844 KB 
Total runtime:3.1901 sec
Peak memory usage:21,769.2656 KB

Time accumulators:

 Accumulator Elapsed Percent Count Average
Load cache0.0094 sec0.2942%370.0003 sec
Mysql Total
Mysqli_queries0.4170 sec13.0600%2940.0014 sec
Looping result0.0968 sec3.0320%2840.0003 sec
Template Total3.1268 sec 97.9% 7 0.4467 sec
Template load0.0101 sec0.3153%70.0014 sec
Template processing3.1168 sec97.6123%70.4453 sec
Template load and register function0.0004 sec0.0110%40.0001 sec
state_id_array0.0145 sec0.4549%270.0005 sec
state_identifier_array0.0234 sec0.7341%360.0007 sec
Cache load0.0097 sec0.3027%1550.0001 sec
eZ Find
Search0.0942 sec2.9515%10.0942 sec
Query build0.0874 sec2.7383%10.0874 sec
Class attribute list0.0815 sec2.5536%10.0815 sec
Engine time0.0055 sec0.1712%10.0055 sec
MoreLikeThis0.0000 sec0.0000%00.0000 sec
Sytem overhead
Fetch class attribute can translate value0.0024 sec0.0748%40.0006 sec
Fetch class attribute name0.0002 sec0.0072%110.0000 sec
Image XML parsing0.0071 sec0.2224%40.0018 sec
Instantiating content class attribute0.0001 sec0.0035%130.0000 sec
String conversion0.0000 sec0.0010%30.0000 sec
dbfile0.0024 sec0.0747%720.0000 sec
View Extra building0.0134 sec0.4193%40.0033 sec
Total script time:3.1930 sec

CSS/JS files loaded with "ezjscPacker" during request:


Templates used to render the page:

UsageRequested templateTemplateTemplate loadedEditOverride
1node/view/full.tplfull/article.tplextension/csm_base/design/csm_design/override/templates/full/article.tplEdit templateOverride template
50content/datatype/view/ezxmltags/paragraph.tpl<No override>extension/ezwebin/design/ezwebin/templates/content/datatype/view/ezxmltags/paragraph.tplEdit templateOverride template
3content/datatype/view/ezimage.tpl<No override>extension/csm_base/design/csm_design/templates/content/datatype/view/ezimage.tplEdit templateOverride template
46content/datatype/view/ezxmltags/link.tpl<No override>extension/csm_base/design/standard/templates/content/datatype/view/ezxmltags/link.tplEdit templateOverride template
8content/datatype/view/ezxmltags/header.tpl<No override>design/standard/templates/content/datatype/view/ezxmltags/header.tplEdit templateOverride template
2content/datatype/view/ezxmltags/pagebreak.tpl<No override>extension/csm_xmlpaging/design/base/templates/content/datatype/view/ezxmltags/pagebreak.tplEdit templateOverride template
2content/datatype/view/ezxmltags/strong.tpl<No override>design/standard/templates/content/datatype/view/ezxmltags/strong.tplEdit templateOverride template
1content/datatype/view/ezstring.tpl<No override>design/standard/templates/content/datatype/view/ezstring.tplEdit templateOverride template
1content/datatype/view/ezxmltext.tpl<No override>design/standard/templates/content/datatype/view/ezxmltext.tplEdit templateOverride template
1content/datatype/view/ezbyline.tpl<No override>extension/csm_base/design/csm_design/templates/content/datatype/view/ezbyline.tplEdit templateOverride template
1content/datatype/view/ezobjectrelationlist.tplcontent/datatype/view/story_images.tplextension/csm_base/design/csm_design/override/templates/content/datatype/view/story_images.tplEdit templateOverride template
1content/datatype/view/eztext.tpl<No override>design/standard/templates/content/datatype/view/eztext.tplEdit templateOverride template
1content/datatype/view/ezstring.tplcontent/datatype/view/image_credit.tplextension/csm_base/design/csm_design/override/templates/content/datatype/view/image_credit.tplEdit templateOverride template
1content/datatype/view/ezxmltext.tplcontent/datatype/view/story_info_box.tplextension/csm_base/design/csm_design/override/templates/content/datatype/view/story_info_box.tplEdit templateOverride template
1content/datatype/view/ezmatrix.tplcontent/datatype/view/ezmatrix_article_related_external_links.tplextension/csm_base/design/csm_design/override/templates/content/datatype/view/ezmatrix_article_related_external_links.tplEdit templateOverride template
1pagelayout.tpl<No override>extension/csm_base/design/csm_design/templates/pagelayout.tplEdit templateOverride template
1modules/mugo_view_extras/extra_cached.tpl<No override>extension/mugo_view_extras/design/standard/templates/modules/mugo_view_extras/extra_cached.tplEdit templateOverride template
1setup/debug_toolbar.tpl<No override>design/standard/templates/setup/debug_toolbar.tplEdit templateOverride template
 Number of times templates used: 123
 Number of unique templates used: 18
 Time used to render template usage: 0.0005 secs