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Louis Jacobson
By Louis Jacobson January 11, 2016

On-and-off enactment of worker tax credit earns Obama a Compromise

A year ago, in the run-up to his 2015 State of the Union address, President Barack Obama revived a proposal that had roots dating back to his 2008 presidential campaign.

During Obama's first presidential campaign, he promised to enact a $500 tax credit for workers. Something similar -- the Making Work Pay tax credit -- was enacted for the tax years 2009 and 2010. It maxed out for individuals at $400, not $500, so at the time we rated the promise Compromise.

As the tax cut was expiring, Obama was in negotiations with lawmakers. Ultimately, he gave up on the Making Work Pay tax credit in exchange for a payroll tax cut. With this change, we kept the rating at Compromise. At the end of 2012, the payroll tax cut expired.

Then, in a White House preview of his 2015 State of the Union address, Obama proposed another $500 tax credit for workers, structured somewhat differently. The document released by the White House said the president "will propose a new $500 second-earner credit to help cover the additional costs faced by families in which both spouses work — benefiting 24 million couples."

Obama did propose this credit in his fiscal year 2016 budget proposal, but we could find no evidence that this had been passed. (It's common for presidential budget proposals to be considered "dead on arrival" in Congress, especially when one or more chambers is controlled by the opposite party, as was the case in 2015.)

The credit "was not in the recent PATH Act that made permanent or extended expiring tax proposals and which was the single major tax bill of the year," said Roberton Williams, a fellow at the Urban Institute-Brookings Institution Tax Policy Center.

The White House said Obama "remains committed" to "a new second-earner credit of up to $500 that recognizes the additional costs faced by families in which both spouses work."

"While Congress has not yet acted on this proposal, the president continues to support -- and advocate for -- such action," the White House said.

We rate promises based on outcomes. The predecessor tax cuts have expired, and the 2015 proposal has not been acted upon, but he did get tax cuts of this sort enacted for half of his tenure. Because Obama has mixed accomplishment on this promise, we rate it a Compromise.

Our Sources

White House, "Fact Sheet: A Simpler, Fairer Tax Code That Responsibly Invests in Middle Class Families," January 17, 2015

Internal Revenue Service, "Making Work Pay Questions and Answers: General Issues," accessed Jan. 11, 2016

Office of Management and Budget, fiscal 2016 budget proposal

Forbes, "Dear America: Your Higher Payroll Taxes Are Not The Result Of A Tax Increase," Jan 14, 2013

Email interview with Dean Baker, co-director of the Center for Economic and Policy Research, Jan. 11, 2016

Email interview with Roberton Williams, fellow at the Urban Institute-Brookings Institution Tax Policy Center, Jan. 11, 2016

Katie Sanders
By Katie Sanders January 20, 2015

Obama announces new $500 tax credit for two-earner households

President Barack Obama's 2015 State of the Union is focused on helping out the middle class with a slew of tax policy changes.

One idea with a memorable price tag: A new $500 tax credit for working couples, cited in a State of the Union fact sheet released by the White House.

The White House said the move will benefit 24 million couples, or 80 percent of two-earner married couples. The credit is meant to offset the extra costs that couples take on when two spouses work, such as child care, elder care and commuting costs.

Obama's new proposal would work like this: For families with two people earning income, they could claim a credit equal to 5 percent of the first $10,000 of earnings for the spouse who earns the lower salary. The highest credit would be available to families with combined incomes up to $120,000, and couples could earn a partial credit for income up to $210,000.

Obama approved tax credits for workers as part of the stimulus package that Congress approved in 2009, but they weren't quite to $500, so we rated the promise Compromise. With this new proposal, we're moving the promise rating back to In the Works.

Our Sources

President Barack Obama's State of the Union address

Angie Drobnic Holan
By Angie Drobnic Holan January 4, 2011

New payroll tax 'holiday' means restructured tax credits, with varied results

President Obama won another year of tax reductions for workers in a major tax compromise that he signed into law right before Christmas. But thanks to the intricacies of tax law, some workers will get slightly bigger breaks in 2011, while others do slightly worse.

To review the history: President Obama campaigned on tax breaks for workers, proposing a rebate that would equal about $500 a year -- technically, the first 6.2 percent of the first $8,100 of earnings. Congress accepted his proposal, including it in the economic stimulus of 2009, but they trimmed it back slightly to a maximum of $400. The tax credit, known as "Making Work Pay," expired at the end of 2011.

So the first time around Obama got slightly less than he wanted, and he only got it for two years. At the time, we rated his promise Compromise.

In December 2010, Obama brokered a broad tax deal with Republicans, avoiding automatic tax increases that were scheduled to take effect and extending some of the tax breaks from the stimulus. But the Making Work Pay tax credit didn't make the package. Instead, the bipartisan compromise created a 2 percent tax "holiday" from payroll taxes that workers pay toward Social Security.

The Social Security tax cut needs a little explaining unless you're intimately familiar with payroll taxes. Normally, workers pay 6.2 percent in payroll taxes on up to $106,800 of their earnings. (Employers pay another 6.2 percent, while the self-employed are generally on the hook for the full 12.4 percent.) The tax cut means workers will pay only 4.2 percent of their earnings. So if you make $106,800 or more, you could save $2,136 in payroll taxes in 2011 -- clearly much more than the Making Work Pay tax credit.

But let's say you make much less than that. We did a back-of-the-envelope calculation and found that if you make less than $20,000, you will likely be worse off under the new plan, getting a smaller tax break than the $400 that was part of the stimulus.

The nonpartisan Tax Policy Center ran a preliminary analysis comparing the tax breaks and found that, generally speaking, people who earn less than $10,000 would probably see higher taxes of about $203 a year. Those who earn between $10,000 and $20,000 could see a an increase of about $185 per year. We should note that's still a little better than before Obama took office; it's just not as good as 2010.

Still, the Tax Policy Center analysis shows that about two-thirds of tax payers would be the same or better off under the the Social Security tax cut than under Making Work Pay. The more money you make, the better off you are.

Finally, we should point out that most workers will see these tax changes in the form of small increases (or decreases, in the case of lower earners) in their regular paychecks. The Obama administration has said that it favors giving out tax breaks through people's paychecks because recipients are more likely to spend the extra dollars in their paychecks and thus stimulate the economy.

So what does all this mean for our rating of Obama's tax promise?

Well, the Social Security tax cut is similar to Making Work Pay, but it's not the same. Many tax payers will likely be better off the new plan, but not all will be. And, the Social Security tax cut is only for one year. Under current law, in 2012 workers will have neither the Social Security tax cut nor the Making Work Pay, so their tax rates will be the same as when Obama took office. We anticipate checking back on on this promise then.

Taking all this together, we rate this promise Compromise.

Angie Drobnic Holan
By Angie Drobnic Holan December 7, 2010

Tax compromise may cut taxes for workers.

When we last checked in on this promise, we rated it Compromise. As part of the stimulus legislation of 2009, Obama won a two-year, $400 tax credit for workers.

This week, though, President Barack Obama sacrificed one of his top campaign promises -- raising taxes on high earners -- as part of a compromise with Republicans to extend current tax rates for everyone for another two years.

Though Obama reversed his position on tax increases for the wealthy, he's didn't trade it away for nothing. In exchange, among other things, Obama got a significant payroll tax reduction for 2011 that will increase take-home pay for workers.

The payroll tax reduction significantly increases tax breaks for workers in 2011, much more than the Making Work Pay tax credit of 2009 and 2010.

The payroll tax holiday would mean $400 for the year for workers who make $20,000; $800 for workers who make $40,000; and $2,000 for workers who make $100,000. Social Security taxes only apply to income up to $106,800, so the measure particularly benefits workers below that threshold. That's significantly more than the $500 maximum tax credit that was part of Obama's campaign promises.

The payroll tax holiday could inject $120 billion into the economy, said Gus Faucher, director of macroeconomics at Moody's

"We think it is going to make a substantial difference for job growth compared to what we were expecting just last week," Faucher said. The forecasting group increased its estimates for job growth in 2011 from 1.3 million new jobs to 2.8 million new jobs, based on the payroll holiday and a few other smaller measures included in the framework.

We're going to be watching the tax package as it makes its way through Congress. If successful, this measure could dramatically exceed Obama's campaign promise. For now, we're changing the ruling on this promise from Compromise and moving it back to In the Works.

Angie Drobnic Holan
By Angie Drobnic Holan February 17, 2009

Congress trims Obama's tax cut for workers

One of the bigger pieces of the economic stimulus bill is the "Making Work Pay" tax credit, an initiative that Obama mentioned often during his campaign. If you ever heard Obama say he would give a tax cut to "95 percent of working families," this program is the origin of that claim.

Obama said the credit was intended to offset payroll taxes, which are automatically deducted from most workers' paychecks. Even if workers make so little that they do not owe income tax, the payroll taxes are not refundable. This is supposed to reimburse them for that. Under Obama's plan, the tax credit would be worth about $500 per worker, or $1,000 for working couples.

The initial version of the stimulus bill in the House, like Obama's original promise, was for $500 per worker. But that was reduced in the Senate to $400 per worker as a way of reducing the overall cost of the package. That lower level of $400 per worker, for a total cost of $116.2 billion, made it into the final bill. Obama signed the American Recovery and Reinvestment Act of 2009 on Feb. 17, 2009.

We should also note that the stimulus bill provides the tax cut only for 2009 and 2010. If Obama wants the tax cut to continue beyond those years, he will have to include it in future budget legislation. Indeed, it's possible Obama could raise the amount to $500 that way. But for the present, we find Obama tried to fulfill his promise and fell slightly short of the goal because Congress trimmed it to $400. That's what we call Compromise.

Our Sources

Angie Drobnic Holan
By Angie Drobnic Holan January 18, 2009

Committee plan includes tax cut

Barack Obama is one step closer to achieving his promise of a $500 tax cut for workers.

The U.S. House of Representatives Ways and Means Committee released its plans for a major stimulus bill, and the tax cut is part of that.
"For 2009 and 2010, the bill would provide a refundable tax credit of up to $500 for working individuals and $1,000 for working families," said a summary released by the committee on Jan. 16, 2009. "This tax credit would be calculated at a rate of 6.2 percent of earned income, and would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples filing jointly). Taxpayers can receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their tax returns."
We're keeping the status of this promise as In the Works.

Our Sources

Angie Drobnic Holan
By Angie Drobnic Holan January 13, 2009

Tax cut is included in economic recovery plan

One of Barack Obama's oft-repeated promises was a middle-class tax cut. During the campaign, he proposed it as rebate on payroll taxes for most workers.

Obama's team has been working on a major economic proposal to jump-start the economy, and Obama has said a tax cut will be part of that.

"To get people spending again, 95 percent of working families will receive a $1,000 tax cut — the first stage of a middle-class tax cut that I promised during the campaign and will include in our next budget," Obama said in a speech at George Mason University.

We'll be watching to see if this proposal actually becomes law.

Our Sources

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