Phase out exemptions and deductions for higher earners

Current tax rules continued for high earners

Updated: Tuesday, December 21st, 2010 | By Angie Drobnic Holan

With 2010 coming to a close, President Obama brokered a major deal on taxes, agreeing to continue the current tax rates for high earners. He said repeatedly during the campaign that he intended to let them expire. The tax rates, passed during President George W. Bush's administration, were set to go up in 2011.

Obama also said during the campaign that he wanted to reduce the exemptions and deductions for which high earners qualify. This would have the effect of making their tax bills higher. But the tax compromise Obama signed into law continued the current levels on exemptions and deductions.

We should note that although he gave in on his campaign promise, Obama got some other things in return. The current tax rates were extended for couples who make less than the $250,000 cut-off as well, and some tax cuts that were part of the 2009 economic stimulus law were also continued. Additionally, Obama won another year of unemployment benefits for workers who qualified, and he won a one-year reduction of Social Security taxes, putting 2 percent of pay back into workers' paychecks.

Obama said he still opposed leaving taxes the same for the wealthy, even though he agreed to the extension.

"I'm as opposed to the high-end tax cuts today as I've been for years," Obama said in a press conference on Dec. 7, 2010. "In the long run, we simply can't afford them. And when they expire in two years, I will fight to end them, just as I suspect the Republican Party may fight to end the middle-class tax cuts that I've championed and that they've opposed."

There's a case to be made that Obama is not completely backing off his campaign promises. He agreed to only a two-year extension of the rates, not making them permanent.

However, Obama said again and again during the campaign that he wanted to increase taxes on high earners. The current tax rates are now scheduled to expire at the end of 2012, just as Obama completes his first term. At that time, we'll revisit this promise to see where it stands. For now we rate it Promise Broken.

Sources:

The White House, Fact Sheet on the Framework Agreement on Middle Class Tax Cuts and Unemployment Insurance, Dec. 7, 2010

Thomas, HR 4583

The White House, Press Conference by the President, Dec. 7, 2010

U.S. Senate Finance Committee, S.A.4753: The Reid-McConnell Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010
 

Obama budget proposes to curtail exemptions and deductions

Updated: Thursday, February 26th, 2009 | By Angie Drobnic Holan

President Obama's Office of Management and Budget unveiled a broad outline of its plans for the 2010 budget on Feb. 26, 2009, highlighting investments in health, energy and education.

To pay for some of those items, Obama proposed allowing the Bush tax cuts to expire as scheduled on people who make more than $200,000 and couples who make more than $250,000. For those same income levels, he plans to restore phaseouts for personal exemptions and deductions. This would limit the amount that higher earners could write off as tax deductible or tax exempt. According to the budget documents, this change would begin in 2011.

Obama's budget still has to be approved by Congress, where Republicans are likely to oppose any effort to let the Bush tax cuts expire. So for now, we rate this promise In the Works.

Sources:

Office of Budget and Management, Budget Documents for Fiscal Year 2010 , accessed Feb. 26, 2009

Office of Budget and Management, Summary Tables , Table S-6, page 123, accessed Feb. 26, 2009

C-SPAN, Peter Orszag briefs reporters on the 2010 budget plan , accessed Feb. 26, 2009