Obama’s Budget Would Shift Tax Benefits From Wealthy To Poor

Obama’s Budget Would Shift Tax Benefits From Wealthy To Poor

By Kathleen Hennessey, Tribune Washington Bureau

WASHINGTON — President Barack Obama will propose a series of changes to the tax code in a budget plan Tuesday that would shift benefits from top earners to middle- and lower-income Americans, the White House said.

In his 2015 budget plan, Obama will propose expanding or making permanent tax credits aimed at the working poor, families with young children, and college students. Obama’s budget would also expand access to retirement savings for people who do not have an employer-sponsored retirement plan.

The new tax breaks would be offset by eliminating tax rules that have benefited top earners.

The White House said the president’s proposal would give 13.5 million Americans a tax cut.

The budget plan, required by law, sets out the president’s priorities, and White House officials hope it will help set the parameters for longer-term debates. But most know that in the short term, Congress is likely to largely ignore it.

Democrats and Republicans just approved a hard-fought, two-year budget agreement after years of short-term spending measures. That deal set spending levels for agencies across the federal government and established a carefully negotiated framework for replacing automatic budget cuts. Leaders in both parties have said there’s no appetite to reopen the debate now.

That leaves the president’s plan as a list of policies far more likely to be written into a campaign ad than a federal law. The White House has described the plan as an “aspiration” document, one that reflects Obama’s hope to level out income disparity and expand “opportunity for all.”

Obama’s plan would expand the Earned Income Tax Credit, which supplements wages for low-income workers, to open it to more low-income, childless adults, a group that currently receives minimal benefits. By expanding eligibility to include people 21 and older and up to 67, raising income limits and providing a larger credit, the White House says it can lift roughly 500,000 people out of poverty.

Obama’s budget would also propose broadening the Child and Dependent Care Tax Credit, which gives working parents a break on childcare expenses. The White House said the expansion would be aimed at parents of children younger than 5 and could benefit about 1.7 million families.

Obama is also reviving a proposal aimed at increasing retirement savings. Dubbed auto-IRA, the proposal would require small business that don’t offer other retirement benefits to set up individual retirement accounts and sign workers up automatically, unless they opt out. About 13 million workers would begin contributing to retirement savings as a result of this proposal, the White House said. Obama first proposed the idea in 2013. Congress has not approved it.

Obama’s budget would make permanent the American Opportunity Tax Credit, which benefits 11.5 million families and students by an average of more than $1,100. It also would simplify tax reporting on Pell Grants, which help low-income students with college tuition, and would ease the tax treatment of student loan interest for borrowers who made payments under income-related repayment plans.

Obama’s plan would offset these changes by closing the so-called “Gingrich” loophole, which lets some high-income professionals avoid payroll taxes on their earnings. The loophole is named after former House Speaker Newt Gingrich, who used it to avoid Medicare payroll taxes on income from his consulting and film production firm. It’s also been called the “John Edwards” loophole after the former Democratic senator, who also used it to trim his tax bill.

Obama’s budget would also eliminate the carried-interest rule, which allows some hedge fund managers to pay a lower tax rate on a significant share of their income.

AFP Photo/Alain Jocard


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