February 27, 2009 Friday
Budget tries for helping hand;
Middle and working class get 'good news'
BYLINE: Laura Petrecca and Christine Dugas
SECTION: MONEY; Pg. 3B
LENGTH: 646 words
President Obama's sweeping budget outline, released Thursday, would raise taxes on the wealthy as it offers a range of cash-saving initiatives for the middle and lower classes. It touches broadly on the typical household budget -- from retirement savings and health care costs to college tuition.
The plan "means a lot of good news for both middle-class families who have been struggling to keep their heads above water and now are in danger of sinking, as well as working-class and lower-class Americans whose heads haven't been above water for some time," says William Galston, senior fellow at the Brookings Institution, a research and public policy institute. The plan's goals:
*Provide tax relief. Millions of taxpayers would receive a permanent break of up to $400 for individuals and up to $800 for couples. "For an American that makes about $200 per paycheck, assuming a few other variables, that's an extra $13," says Mark Steber, vice president of tax resources for Jackson Hewitt. "It's additional money in their pocket."
*Expand earned income tax credit. This tax credit is among the "bigger tax credits both in size and scope," Steber says. In the past, there has been a limit based on "how much money you make and how many children you have," he says. Obama's plan calls for making the credit permanent, as well as expanding the financial benefits for those who qualify.
*Make college more affordable. The plan not only has provisions for reduced interest rates for student loans, it also calls for a permanent tax credit -- up to $2,500 annually, based on education expenditures -- for those who qualify. This could help families with their college cost budgeting, Galston says.
*Bulk enrollment in retirement plans. The plan calls for employer assistance so they can "set up the systems they need to directly deposit worker contributions to IRA accounts if they don't offer workplace retirement plans," Galston says. Employers that offer 401(k) retirement plans would also have to provide mandatory automatic enrollment. "This would require them to do it, and then employees would be able to opt out," says Dallas Salisbury, CEO of the Employee Benefit Research Institute. This mandatory provision could be controversial, because it will increase administrative and employer costs during a tough economy, Salisbury says.
*Improve the savers credit. The plan would increase the tax credit to families earning up to $65,000 annually, from $50,000. Savers would be entitled to a refundable 50% credit on the first $1,000 in contributions.
*Make permanent the American Opportunity Tax Credit and make it available to more families. This provides a $1,000 child tax credit to low-income families.
The thrust of the tax proposals is to make the tax law more progressive, says Daniel Goldberg, professor at the University of Maryland School of Law.
But the far-reaching plans worry some.
"They're going to extend the Bush tax cuts and add their own tax cuts," says Bob McIntyre of Citizens for Tax Justice. "They don't explain how they're going to pay for it."
Contributing: Mimi Hall
Proposed upper-income tax changes
President Obama's 2009 budget would, beginning in 2011, raise taxes on taxpayers earning more than $250,000 (married filers) and $200,000 (single filers) and make other tax changes, such as limiting itemized deductions. How it could look:
Change Under current law 2011
Increase top tax rate to 36% and 39.6% $44,8281 in taxes paid $46,173 in taxes paid
An upper-income filer claiming $10,000, for example, in charitable giving would face a reduced deduction benefit to 28%, down from 33% to 35% $3,500 $2,800
Change tax rate on capital gains and dividends 15%2 20%3
1 -- married, filing jointly with income not above $357,700; 2 -- majority of wealthy filers face 15% rate; 3 -- effective in 2010
Sources: Office of Management and Budget, USA TODAY research