Obama's Anti-Prosperity Crusade

From Vision To America and Front Page Mag:

Obama’s Anti-Prosperity Crusade


Posted by Tait Trussell on Oct 8th, 2010 and filed under FrontPage

Athough President Obama’s persistent contention that extending the Bush cuts would be “irresponsible” and only help the rich, a new Tax Foundation analysis released Oct. 7 finds that low-income workers would have a financial setback. Ironically, the meager-income folks he would hurt are a big part of Obama’s voter base. The Bush tax reductions will expire at the end of 2010, unless Congress extends them.



In a town-hall discussion in Washington Sept. 20 on CNBC television, Obama claimed: “Our tax rates are lower now than they were under Ronald Reagan. The federal government is probably less intrusive now than it was 30 years ago,” he fantasized.



If the tax relief isn’t extended, most of the old higher taxes will kick in. Sunset provisions were included for both the 2001 and 2003 tax laws. While Obama has convinced much of the public that the Bush tax cuts were mainly for the wealthy, “taxpayers across the entire income spectrum received a significant tax cut,” the Tax Foundation analysis noted. Moreover, the earned income tax credit (EITC) for the working poor, originally enacted as an anti-poverty measure, will be affected, too, if the tax provisions in the stimulus package of 2009 are allowed to expire.



If one compares changes in after-tax income, it shows that the benefit of the tax cuts were distributed much more equally along the income scale, because the Bush tax cuts included many provisions targeted specifically at low-income people. Folks with low incomes benefited from some stimulus measures enacted in 2009. They also are scheduled to expire at year’s end, namely, by the expansion of the earned income tax credit, as well as larger credits for college education. Various tax proposals made by members of both political parties extend most of these low-income tax provisions. But, as the Tax Foundation study points out, “the current Congress has shown itself to be unusually susceptible to gridlock. No vote will occur before the midterm elections. And although both parties have indicated the tax matter will be addressed in a lame-duck session after the Nov. 2 elections, there’s no certainty of legislative agreement then either.”









Because the threat of entire expiration of the tax cuts is quite possible, it is important to consider what effect it would have on low-income taxpayers. Take the EITC. It’s a sizeable gift for the working poor. Workers with wages within a certain range and very limited investment income are eligible. The credit is refundable, meaning that workers who have no income tax liability get the credit in the form of a check. When a worker reaches an income level at which the credit is considered unnecessary, the credit starts to decline. Before the Bush tax cuts, the credit amounts were the same for both single people and married couples. This was a component of the so-called marriage penalty. If two single EITC recipients –maybe living together—got married, their combined income often would make them ineligible for the EITC. The Bush tax cut changed this by increasing the income threshold at which the credit starts to phase out for married filers.



The 2009 stimulus law added a new more generous EITC category for tax filers claiming three or more dependent children.



The present Republican proposal is to extend all the Bush tax cuts without any stimulus law provisions. Democrats in Congress would extend both the Bush EITC and some stimulus provisions, too.