Obama to use backdoor taxes to hit middle class? Oops, not true.

Reuters withdrew a story Tuesday that suggested Obama would cut the deficit through backdoor taxes on the middle class.

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    Last week, President Obama toured Chesapeake Machine in Baltimore to talk up his jobs tax credit. Contrary to a Reuters report, which generated lots of Internet buzz Tuesday, the White House plans on extending many of the tax cuts that are due to expire this year and next.
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It says something about the state of partisanship in America when the biggest budget story of the day is a nonstory. Literally.

After Reuters published a story Monday about how backdoor taxes would hit middle-class Americans under President Obama, the White House complained about inaccuracies. Reuters pulled it Tuesday morning, saying a replacement story would be coming. Later in the day, it said the story was wrong and that there would be no substitute.

By then, however, the story was Internet buzz: The Obama administration was going to cut the deficits by letting a raft of tax cuts expire, hurting the middle class. Some conservative bloggers posted it before it could be deleted.

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While it's true that if Congress did let all the Bush tax cuts and other provisions expire, the middle class would end up paying boatloads more money, it's not reasonable to suggest that that will happen. Some tax cuts are just so popular – for Democrats as well as Republicans – that it's unlikely they'll be allowed to lapse anytime soon, says William Ahern, spokesman for the Tax Foundation, a nonpartisan tax-research group in Washington, D.C..

In fact, the president's budget, released this week, calls for a continuation of the Bush tax cuts for anyone making less than $250,000. It also calls for continuing the so-called "patch" to the alternative minimum tax (AMT) so that millions of middle-class Americans don't get snared by the higher levies it imposes.

By letting the federal estate tax lapse late last year, Congress raised some eyebrows – and perhaps some hopes – that the controversial levy would disappear. But the Obama budget calls for the 45 percent rate in force during 2009 to be continued in 2010.

So much for the White House cutting the deficit through backdoor tax increases on the middle class.

Other Obama tax increases affecting the middle class are in line with expectations, such as the hike in the tax rate on capital gains and dividends to 20 percent.

The brouhaha does raise one other issue: If the Obama administration lets several stimulus-related tax provisions expire, like the sales-tax reduction on the purchase of new cars, is that a tax increase?

It means more money out of taxpayer pocketbooks. But these tax breaks were never intended to be permanent the way the Bush tax cuts were intended, says Roberton Williams, a senior fellow at the Tax Policy Center, a Washington think tank sponsored by the Urban Institute and Brookings Institution. "It becomes a philosophical question," he writes in an e-mail.

Just as philosophical, I suppose, as whether a discredited story that's been killed is still a news story if it lives online.

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