WASHINGTON: A new analysis by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute suggests that President Barack Obama’s recent tax proposals would do little to boost incomes for middle-class households, rather actually could wind up raising taxes on many, at least by some measures. The analysis tends to undercut recent administration statements that its plan is aimed at helping middle-class families get ahead and stimulate the economy.
The new study is likely to be cited by those critical of Mr. Obama’s tax proposals, which were highlighted his State of the Union address last week. Already, Mr. Obama has been forced to abandon a proposal to end tax-free distributions from 529 college-savings accounts because of concerns it could impact middle-class savers.
In his State of the Union speech, Mr. Obama promised a new “middle-class economics” that would “lower the taxes of working families and put thousands of dollars back into their pockets each year.” The analysis, however, shows that Mr. Obama’s new proposals actually “would have very little net impact on middle-income households,”. Instead, much of the benefit of Mr. Obama’s plan goes to the lowest-income households, the analysis concludes.
Those making between $49,000 and $84,000, the middle quintile of earners would actually see their taxes go up by an average of $7 under Mr. Obama’s proposals. In the middle, there would be a mix of winners and losers. About one quarter would get a tax cut averaging about $550, while about half would get a tax increase averaging about $290.
Instead, the biggest boost to incomes would come in the lowest quintile, those with incomes up to about $25,000. They would see their incomes go up by about 1.2%, or $174. Those in the top 1% would see theirs fall by 2%, or about $29,000.
One reason for the result is that experts tried to estimate the impact on all U.S. workers of the president’s new proposed tax on highly-leveraged financial institutions. That is not a direct tax increase on those workers, but economists figure they would pay in some fashion through lower compensation and benefits.
The picture is slightly better for the administration if the bank tax is set aside. In that case, only about 6% of households in the middle quintile see a tax increase, as opposed to almost half. But the overall impact of the president’s plan on this group remains negligible, no change in after-tax incomes and an average $12 tax cut.
The analysis also has the potential to undermine administration claims on its capital gains proposal. In its State of the Union fact sheet, the White House said that 99% of the impact of those increases would fall on the top 1% of earners. The TPC analysis shows that about 62% of the overall tax increase would fall on the top 1%, while the rest 38% would fall on people with lower incomes. These increases would be felt far down the income spectrum, mostly because of Mr. Obama’s proposal to start imposing capital-gains tax on many inheritances.
Although very few households would be affected at incomes below $500,000 in a given year, some people in lower brackets could see increases because of the administration’s proposal to impose capital gains tax on inheritances. The analysis, for example, says the average increase for people in the $75,000-$100,000 income range would be $101,000.
