[StBernard] Major Shift In Tax Burdens Possible Under Obama

[Westley Annis]

First let me say, I am NOT an economic expert.  In fact most discussions of
economics beyond the most basic of practices, leaves me pretty confused and
perplexed.  But there is a particular situation that I have been puzzled by
throughout this election:  One political party discusses tax relief for mid
to lower earning citizens, the other calls these tax changes,
"redistributing the wealth".   If I am a mid to lower earning citizen and
the taxes that are taken out of my wages are lowered, and thus my take home
pay increases, how can that be a "redistribution" of wealth if it was MY
money to begin with?
Penny in Texas


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	Major Shift In Tax Burdens Possible Under Obama
	Editor: Sharon Li
	6 Nov 2008 09:50:51 GMT 
	
	WASHINGTON --Four years under President-elect Barack Obama have the
	potential to produce a major shake-up in the distribution of tax
burdens. 
	
	Obama, projected by major media outlets to win the presidential
election,
	proposed a "middle-class tax cut" that became a key feature of his
	campaign.
	He used it successfully used to parry charges from Sen. John McCain,
	R-Ariz., that he would raise taxes. 
	
	On the business tax side, large multinational firms that operate in
low-tax
	jurisdictions are among the potential losers under the Obama White
House.
	Obama wants to curtail companies' ability to defer taxes on income
they
	earn
	overseas, claiming that the tax rules encourage moving jobs
offshore. 
	
	Much of Obama's promised middle-class tax cut would come from a new
	refundable credit designed to offset payroll taxes on the first
$8,100 of
	wages. The "Making Work Pay" credit would be worth up to $500 per
	wage-earner. 
	
	He also wants to exempt seniors earning less than $50,000 from
income tax,
	increase the earnings base for calculating the earned income tax
credit, and
	expand and make refundable the child- and dependent-care tax credit.

	
	All those proposals would either cut taxes or increase payments to
those at
	the lower end of the income spectrum. 
	
	At the upper end, Obama's proposals point to a very different
scenario. 
	
	He would allow the top two marginal tax rates - now 33% and 35% - to
rise to
	36% and 39.6%, respectively. Based on 2009 thresholds, that would
result in
	a tax increase on singles making $171,550 and above and married
couples
	making $208,850 and above. 
	
	Upper income taxpayers in those brackets would lose other tax
benefits:
	Obama would restore phase-outs of personal exemptions and itemized
	deductions, which were gradually repealed by 2001 tax-cut
legislation. 
	
	Obama has proposed raising the tax rate on capital gains income to
20% from
	15% for single taxpayers making more than $200,000 and for married
couples
	earning more than $250,000. 
	
	He would also apply a payroll surtax between 2% to 4% to earnings
above
	$250,000, to bring those earnings into the Social Security wage
base. 
	
	Robert Carroll, vice-president for economic policy at the Tax
Foundation,
	has estimated that Obama's proposed tax increases on income,
combined with
	the payroll tax surtax, would push the effective marginal tax rate
to 47.2%
	for a couple earning $500,000. The effective marginal rate is the
tax rate
	on the last dollar of income earned. 
	
	"If he were able to follow through, it would be a significant shift
in
	distribution. [Obama] has been very clear on his objective - to
redistribute
	income," Carroll said. 
	
	On the estate tax, Obama supports extending 2009 levels, which would
exempt
	all estates less than $3.5 million and tax inheritances above that
amount at
	a 45% rate. 
	
	Congress will very likely pass some kind of estate tax legislation
next
	year. Because if it doesn't act, the tax will be repealed altogether
in
	2010, before snapping back in 2011. That would create a ghastly
choice for
	estate owners between death and taxes, a proposition lawmakers want
to
	avoid. 
	
	Senate Republicans in recent years have had the votes to block a
permanent
	estate tax fix along the lines of Obama's proposal and have pushed
plans to
	lower rates and exempt more estate income. That ability is now
severely
	diminished. 
	
	Taken together, Obama's individual tax proposals tackle head on
complaints
	by Democratic politicians that years of GOP policies have
exacerbated the
	gap between working-class Americans and the wealthy. 
	
	What they don't do, however, is generate revenue. The Tax Policy
Center
	found that, when measured against current law, Obama's tax proposals
would
	increase the deficit by a total of $2.9 trillion over 10 years.
That's
	because the tax breaks for seniors and the middle class outweigh the
tax
	hikes on the wealthy. 
	
	With the U.S. facing long-term shortfalls in Social Security and
Medicare,
	and with the crush of other spending programs Obama hopes to enact,
revenue
	will be the key constraint on Obama's ability to follow through on
tax-cut
	promises. 
	
	That constraint also helped to doom former President Bill Clinton's
plans
	for a middle-class tax cut. 
	
	"It's very hard to see how he'll be able to follow through with
	these lower-
	and middle-income tax cuts. It would be remarkable if he were able
to pull
	that off," Carroll said. 
	
	Turning to business taxation, multinational firms could have much
less
	flexibility deferring or reducing taxes by moving funds among
low-tax
	nations overseas. For example, House Democrats are backing a plan
that would
	deny firms the ability to deduct expenses connected with overseas
income,
	until that income is returned to the U.S. 
	
	Ending deferral, or curtailing it, would most hurt companies that
operate in
	low-tax jurisdictions like Hong Kong, Dubai, or Ireland, said
Leonard Levin,
	a principal at the accounting firm Weiser LLP. 
	
	Those companies will face a tax penalty if they are no longer
allowed to
	defer offshore earnings. U.S. firms whose overseas business is
mainly
	concentrated in Western Europe or Japan, by contrast, can already
use
	foreign tax credits to reduce much of their U.S. tax cost on
overseas
	earnings. 
	
	"Some major companies might not be too averse to elimination of
deferral,
	if
	they could continue to use foreign tax credits," Levin said. 
	
	Oil and gas firms could stand to lose more tax benefits. Legislation
passed
	this fall limited the manufacturing deduction for oil and gas firms,
while
	Obama has proposed to repeal it altogether for oil and gas. 
	
	At the same time, Obama has proposed some targeted tax incentives
that could
	benefit U.S. employers and start-up firms. 
	
	He wants to institute a zero-percent capital gains rate for
investments in
	small businesses or start-up companies. How those two categories
would be
	defined hasn't been explained. 
	
	And Obama has floated a $3,000 credit against business taxes for
each new
	full-time job created. 
	
	He has said he would entertain a cut in the corporate tax rate, but
only to
	the extent that it can be financed by closing loopholes and
repealing
	targeted tax breaks in the code. 
	
	
	-By Martin Vaughan, Dow Jones Newswires; 202-862-9244;
	martin.vaughan at dowjones.com