Published April 24, 2010
President Obama's derision last week of Tea Party activists who don't sufficiently appreciate his tax-cutting prowess earned plenty of laughs at a Democratic fundraiser in Florida, but the truth behind Obama's policies aren't nearly as funny, tax analysts say.
While a family of four earning $85,000 or $90,000 has seen its tax burden decrease since Obama took office -- thanks to a two-year cut in his stimulus bill and the continuation of tax cuts passed during Bush's administration -- that doesn't tell the whole story, tax analysts told FoxNews.com.
New taxes are on the way, said Ryan Ellis, tax policy director of Americans for Tax Reform, who noted that only one third of the stimulus package is tax cuts, the rest is government spending without revenue to match it. The recently passed health care law also will eventually lead to higher taxes for middle-income families, Ellis said.
On top of that, the Bush-era tax cuts are scheduled to expire at the end of the year unless Congress acts.
Obama has proposed extending the Bush-era cuts except for those individuals making more than $200,000 a year and couples making $250,000. Rep. Sander Levin, D-Mich., acting chairman of the tax-writing House Ways and Means Committee, affirmed on Monday that his panel will focus on extending Bush's tax cuts for the middle class.
The Tax Foundation, a nonpartisan educational organization that tries to teach people about their tax burden, is about to release a comprehensive report on comparative tax rates in the Bush and Obama administrations.
It found that a family of four earning $85,000, taking the child credit, deducting mortgage interest and using the Making Work Pay credit -- a temporary fix enacted in the stimulus package -- will see its tax liability be $4,583 in 2011, assuming that tax cuts passed during President Bush's first term are kept in place. Without them and none of Obama's policies enacted, the family's tax payment in 2011 would be $7,235.
In addition, if the stimulus law's tax cuts are not renewed for the 2011 tax year, the elimination of the Making Work Pay credit, which provides as much as $800 for couples and up to $400 for individuals, would result in higher taxes for the family of four, said Natasha Altamirano, a spokeswoman for the Tax Foundation.
In Ellis' analysis, which he did on the request of FoxNews.com, extending the Bush tax cuts will make a big difference for a family of four earning $90,000. The family's tax liability for 2010 will be $5,961 -- while the tax cut is still in place. But if the Bush tax cut is allowed to expire, then the family's tax liability rises to $9,281 in the 2011 tax year.
In an analysis by the Tax Institute at H&R Block, which also responded to a request by FoxNews.com, if Bush's tax cuts are allowed to expire, the family of four earning $90,000 will see its tax liability increase from $6,769 for 2009 to $9,700 for 2010 and $11,700 for 2011.
If those uncertainties are not enough, both Altamirano and Gene King, a spokesman for H&R Block, noted that the family of four's tax liability is affected by the Alternative Minimum Tax, which is a parallel tax system designed to keep wealthy taxpayers from taking deductions to the point where they don't owe taxes.
Congress traditionally allows an exemption on income that would be subject to the AMT. In 2009, the AMT exemption was $70,950 for a married couple filing jointly. Without a congressional fix this year, the exemption for the AMT drops back to $45,000 for the 2010 tax year, forcing the middle-income family to pay additional taxes above what the regular tax rate and wiping out the value of the child tax credits.
At a Democratic fundraiser in Miami last Thursday, Obama credited his signature economic recovery package with putting more than 2 million Americans back to work and with cutting taxes for families, small businesses and students. He singled out the anti-tax Tea Party movement that fanned out across the country Thursday to hold demonstrations and rallies marking Tax Day.
"I've been a little amused over the last couple of days where people have been having these rallies about taxes," the president said, noting the numerous tax cuts pushed by his administration. "You would think they'd be saying, 'Thank you.'"
But besides the possible end to the cuts provided by the two-year stimulus bill and the Bush-era cuts, the health care law that will go into effect over the next few years includes 19 tax hikes, Ellis said. He noted that a value added tax to help close the federal deficit -- an idea the White House has denied considering despite considerable discussion in Washington -- would have another big impact on middle-class earners.
"To us, you can't just look with horseblinders at the Bush tax cuts or the stimulus bill. That misses the whole larger context," he said. "The larger point we're trying to make is don't buy into the spin that these people should be happy they got the tax cut up front. … Look at all the tax increases that passed and threatened tax increases."
Altamirano said a more troubling concern to her group is the 36 percent of tax filers being carved out of the tax base by having no income tax liability at all. She said that it is possible for a family of four earning more than $51,000 to steer clear of federal income taxes.
"The tax code is being used increasingly as a social welfare tool to redistribute income from higher-income earners to lower-income earners," she said in an e-mail. "When people hear that it's just the top 1 percent or top 10 percent of earners who are on the 'losing' end, they maybe don't care since they'll be gaining more in tax benefits and redistribution through public services, but it's also a question of fiscal responsibility and sustainability."