Sneaky Backdoor Tax Increase on the Middle Class

Reuters is claiming that Obama’s plan to reduce the deficit includes increasing taxes on the middle class.  The story was originally posted to the internet Monday evening with the title “Backdoor Taxes to Hit the Middle Class”.  It clearly lays out the case that Obama is going to break his well known campaign promise of not raising taxes on people making less than $250,000.  This is a rare story from Reuters, because it is critical of Obama.  However, a few hours after the story was posted, Reuters pulled it from the internet.  Why would they pull such a big story about the President breaking a major campaign promise?  Maybe they received a phone call from the White House telling them that the administration did not approve of the story?  Liberal bias in the media?  State control of the news agencies?  Whatever the reason is, I found a copy of the Reuters story still up on the website of an NBC affiliate in Texas.  Here is the now elusive Reuters story about Obama’s backdoor taxes on the middle class.  I decided to post the entire article in case the NBC affiliate is forced to take it down.  From Reuters,

The Obama administration’s plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.

In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year — effectively a tax hike by stealth.

While the administration is focusing its proposal on eliminating tax breaks for individuals who earn $250,000 a year or more, middle-class families will face a slew of these backdoor increases.

The targeted tax provisions were enacted under the Bush administration’s Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

Investors will pay more on their earnings next year as well, with the tax on dividends jumping to 39.6 percent from 15 percent and the capital-gains tax increasing to 20 percent from 15 percent. The estate tax is eliminated this year, but it will return in 2011 — though there has been talk about reinstating the death tax sooner.

Millions of middle-class households already may be facing higher taxes in 2010 because Congress has failed to extend tax breaks that expired on January 1, most notably a “patch” that limited the impact of the alternative minimum tax. The AMT, initially designed to prevent the very rich from avoiding income taxes, was never indexed for inflation. Now the tax is affecting millions of middle-income households, but lawmakers have been reluctant to repeal it because it has become a key source of revenue.

Without annual legislation to renew the patch this year, the AMT could affect an estimated 25 million taxpayers with incomes as low as $33,750 (or $45,000 for joint filers). Even if the patch is extended to last year’s levels, the tax will hit American families that can hardly be considered wealthy — the AMT exemption for 2009 was $46,700 for singles and $70,950 for married couples filing jointly.

Middle-class families also will find fewer tax breaks available to them in 2010 if other popular tax provisions are allowed to expire. Among them:

* Taxpayers who itemize will lose the option to deduct state sales-tax payments instead of state and local income taxes;

* The $250 teacher tax credit for classroom supplies;

* The tax deduction for up to $4,000 of college tuition and expenses;

* Individuals who don’t itemize will no longer be able to increase their standard deduction by up to $1,000 for property taxes paid;

* The first $2,400 of unemployment benefits are taxable, in 2009 that amount was tax-free.

Another day, another broken promise from President Obama. Here is a video clip form the 2008 campaign where Obama promised not to raise taxes on families making less than $250,000.

Hmmm.  No capital gains tax increases, no payroll tax increases, no income tax increases?  It took only a little over a year in office to completely destroy these campaign promises.  Hope and change, right?  When will all the Obama supporters wake up and realize they have been duped?

Update
Reuters has claimed that their story was factually incorrect. According to the Cristian Science Monitor, some taxes will be raised on the middle class, but not all of the tax increases in the original story are set to go into effect .  Is the story is actually true and Reuters caved to the pressure from the White House?  You make the call.

Related posts:

1. Another Day, Another Promise Broken
2. The Death Tax, It’s Not Their Money Anyway