President Obama has revealed his proposed budget, and it includes close to $280 billion in tax cuts for families with low to middle incomes. The tax cuts for those income brackets would be paid for with about $1.5 trillion in new taxes over the next 10 years. As expected, these new taxes would mostly be levied against corporations and households considered to have high incomes.
Which Households are Mostly Likely to Benefit?
Obama insists that his proposed budget is aimed at re-growing a middle class that has been shrinking in the wake of growing income inequality. However, even so, not all middle class households are going to benefit from the tax breaks proposed in this budget.
For households with two wage earners and young children in child care, the tax benefits are more likely to come in handy. Two-income families with children in college are also likely to benefit. But this doesn’t mean that you need to have children to benefit. Obama’s budget also includes a proposal to extend the popular Earned Income Tax Credit to more low-wage earners that don’t have children.
The Tax Policy Center estimates that about 25 percent of families with incomes of between $50,000 and $75,000 would receive a tax cut under the proposed plan. Some in this group would see a tax increase, but the vast majority — close to 70 percent — wouldn’t see any changes.
For low-income families, an average tax cut of about $617 would be seen for about one-third of those with average income of about $15,600. Many people wouldn’t see significant changes to their tax bills in this category, either.
In fact, while there would be some families helped by the President’s tax proposals, most of those in the middle class would be unaffected, and even a number of those with low incomes wouldn’t see a change. But there would be some beneficiaries, and those beneficiaries would see some of the breaks paid for with higher capital gains taxes for the wealthy, and taxes on unrepatriated corporate profits.
Many middle class families were relieved when President Obama withdrew a proposal to change the status of 529 plans, though. A general outcry was raised with the idea of getting rid of some of the tax benefits associated with these college savings plans. Like the tax benefits associated with retirement accounts, many in the middle class don’t want to see tax benefits associated with college accounts reduced. That idea didn’t make it into the budget proposal.
Will We See These Changes?
The real question is whether or not Congress will adopt any of these changes when it reviews the budget. Republicans (who now control both the House of Representatives and the Senate) are reluctant to raise taxes on corporations and the wealthy, and their tax reform ideas are likely to be different than what the President has proposed. We haven’t seen some concrete proposals from the GOP leadership yet, but it will be interesting to see how the tax battle shapes up throughout the year.