President Barack Obama's tax proposal is changing the debate in Washington about corporate and personal taxes. Reaction is, so far, less partisan (though still very partisan) than much that has taken place in Washington since Obama took office in 2009.
Extending the cuts for the middle class–defined as the 98% of families earning less than $250,000 a year–would add $2.3 trillion to the Office of Management and Budget's (OMB) projected $10 trillion deficit in 2020, according to Tim Speiss, partner and chairman of EisnerAmper Personal Wealth Advisors. Extending the cuts to the 2% remaining, and highest-income, earners would add about another $1 trillion over 10 years, for a total deficit projection of $13.3 trillion.
The President proposed:
- Tax breaks for companies that create jobs in America rather than overseas
- A corporate write off for companies that invest in "plants and equipment" in 2011
- Additional infrastructure projects, and
- Making permanent the tax cuts (for those earning up to $250,000 a year (households)
Remarks by House Minority Leader John Boehner, R-Ohio, on Sunday, on "Face the Nation," were noted by media and politicians alike: "If the only option I have is to vote for those at 250 and below, of course I'm going to do that," he said, adding, "But I'm going to do everything I can to fight to make sure that we extend the current tax rates for all Americans."
Senate Minority Leader Mitch McConnell, R-Ky., on Monday, though, opposed any compromise, saying he would only support extending the tax cuts for everyone.
On the middle-class tax cut extension, Speiss says, "right now, 98% of taxpayers are under the $250,000. You basically would be freezing those folks at a 33% rate; 35% rate; and 2% [of taxpayers making more than $250,000] could be subject to the much-higher 39.6% tax rate."
"If the bush tax cuts were extended [for everyone], it would add about $3.3 trillion to the federal deficit by 2020…right now, the deficit is expected to be $10 trillion by 2020. If you extended the Bush tax cut, you'd be increasing it by 30%," to $13.2% in 2020, Speiss says, using the OMB projections. "Even if the Obama $250,000 household tax plan comes into effect, you're still adding $2.3 trillion to the deficit," in 2020, making it $12.3 trillion. "It's only a 17% savings." To save the entire amount of $3.3 trillion from the 2020 deficit, Speiss says, Obama "would have to go deep into the middle class to do that."
The Hidden Tax on the Middle Class
"One of the biggest slights-of-hand," Speiss adds, "that nobody ever talks about," is the "Medicare, Social Security OASDI tax. That increases every year–and guess who pays that? Dollar for dollar it's the people under $250,000." Each year, Speiss notes, "the amount of income that is subject to the Medicare, Social Security OASDI tax increases…If you think about it, it is a supplemental income tax–it's on top of the income tax. And, by the way, there're no deductions against it."