Obama Wants One-Year Extension of Bush-Era Tax Rates, But Only for Some
President Barack Obama has asked Congress to take up legislation that extends for one year the Bush-era tax rates for families earning less than $250,000 annually. Republican leaders pledged to take up legislation to extend the lower tax rates for everyone, including those earning more than $250,000.
In comments from the White House on July 9, Obama said the aim “isn’t just to reclaim jobs, but to reclaim the security that so many middle class have lost over the past decade.” A “strong middle class,” he said, “is what I believe spurs the economy,” not more tax cuts for the wealthy. He said Republicans have been promoting “top-down economics.”
One unintended irony in Obama’s remarks is that the recent 5-4 Supreme Court ruling upholding the Obamacare health care law declares the personal mandate to carry health insurance to be a tax. This means millions of middle-income persons Obama says he does not want to tax more heavily will be subject to the Obamacare tax.
Another unintended irony is that Republican presidential challenger Mitt Romney engineered a state health insurance law that has been dubbed Romneycare while he was governor of Massachusetts in 2006. Obama has said he modeled his Obamacare law on Romneycare, which includes a personal mandate to buy insurance and has tax penalties for those who do not buy it.
After the Supreme Court ruling declaring the mandate to be a tax,Romney said he did not believe the penalty is a tax but then back-tracked to declare it is a tax and unconstitutional. He is calling for the repeal and replacement of Obamacare.
Some Obamacare tax increases have already occurred and others will go in force in 2013.
Under $250K in Crosshairs?
Peter Ferrara, senior fellow for entitlement and budget policy at The Heartland Institute, said Obama’s call for a one-year extension signals his intent to impose broad taxes on the middle-income earners he pledged not to tax more heavily when he first ran for the presidency.
“With this proposal, President Obama for the first time raises the possibility that the Bush tax rates will not be permanently extended for those making less than $250,000 a year. If that is not the case, why else would he propose only to extend the tax rates for them for just one year?” Ferrara said in a statement. “Temporary tax relief does not work to promote the economy, as Obama should have learned by now.”
Taxpayer advocates are referring to January 1, 2013 as the start of “Taxmageddon” because of an estimated half-trillion dollars of annual tax increases that will be imposed if the early 2000s tax rates are allowed to expire and various Obamacare taxes are put into place.
Among the tax increases that are scheduled to occur:
More than 20 new or higher taxes will be imposed because of Obamacare, including taxes on medical devices, a Medicare payroll tax hike on wages and profits exceeding $200,000 ($250,000 for married couples), and a smaller deduction for medical expenses.
Personal Income Taxes
- Elimination of the 10 percent personal income tax bracket to be replaced by a new and expanded 15 percent bracket.
- 25 percent bracket rises to 28 percent.
- 28 percent bracket rises to 31 percent.
- 33 percent bracket rises to 36 percent.
- 36 percent bracket rises to 39.6 percent.
Marriage, Family Penalties
The “marriage penalty” (narrower tax brackets for married couples) will be imposed on the first dollar of taxable income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level.
Penalties on Savers, Investors
The capital gains tax will rise from 15 percent this year to 23.8 percent in 2013. The dividends tax will rise from 15 percent this year to 43.4 percent in 2013. These result from the scheduled expiration of the early 20000s tax rates plus Obamacare’s investment surtax.
Dozens of additional changes would force businesses to pay higher taxes.