The broad outlines of Obama's tax policies are fairly clear. He wants to raise the taxes paid by people earning over $200,000 (or over $250,000 for married filers). The tax hikes will come mostly by raising the top two tax rates to 36% and 39.6% from the current rates of 33% and 35%, by adding a new capital gains rate of 20%, and by limiting the value of deductions.
Obama plans to provide tax relief for people in the lower tax brackets. He wants to continue the 10%, 15%, 25%, and 28% tax brackets that were put into place in 2001 and are scheduled to expire at the end of 2010. Unless Congress acts, these four tax brackets will revert to their pre-2001 rates of 15%, 28%, and 31%. (For more details on tax laws scheduled to expire in 2010, see The Tax Code's Day of Reckoning: January 1, 2011 from the Tax Foundation.)
Obama also wants to modify various tax credits and deductions to make them more favorable for people in the lower tax brackets. He would like the Making Work Pay and American Opportunity tax credits to become permanent features in the tax code (currently these credits will last only for two years in 2009 and 2010). Also planned are expansions to the child tax credit and earned income credit. One innovative tax idea Obama proposes is to make the Retirement Savings credit refundable, and for the IRS to deposit that portion of a tax refund into a person's retirement account. This would make the saver's credit more like a matching program, similar to employer-matching with a 401(k) plan. However, Obama also plans to reduce the saver's credit from its current maximum of $1,000 to a maximum of $500.
Obama also plans to mandate third-party reporting of income paid to corporations and certain types of life insurance policies. Obama would also permit businesses to withhold tax on payments made to independent contractors, and would double the fines associated with failing to submit 1099 documents with the IRS. Obama would also like to require taxpayers to report information about their foreign bank accounts on their tax returns in addition to the annual report filed with the Treasury Department.
Not filing a tax return could become a penalty. Obama proposes to make willfully failing to file a tax return a felony, with a maximum penalty of $250,000 and/or up to five years in prison.
More information:
- Obama's Proposed Tax Changes: Tax Cuts
- Obama's Proposed Tax Changes: Tax Hikes
- Obama Proposes Elimination of Advance Earned Income Tax Credit (Tax Foundation)
- Obama seeks to double tax law enforcement budget (Reuters)
- Non-filing a Felony Under Obama Tax Law (Tax Lawyer's Blog)
- Obama to Attack Overseas Tax Havens (US Government Info Blog)
- Administration's International Tax Proposals Plan to Raise $210B Over 10 Years (Journal of Accountancy)
- Congress passes budget, a boon for Obama (Boston Globe)
- Congress OKs $3.6 trillion Obama budget (Washington Times)
- US Congress Approves 2010 Budget (USA Tax News Blog)