This week presidential candidate Barack Obama announced the broad outlines of his plan to cut taxes for 150 million Americans at a cost of $85 billion a year. The plan would give families a credit of $1000 (or $500 for unmarried taxpayers) and eliminate income taxes for seniors whose income is below $50,000. The credit would essentially offset payroll taxes on the first $8,100 in earnings.
Low- and middle-income seniors (who generally don't face payroll taxes) could benefit from being removed from the federal income tax rolls, although that demographic is not paying a whole lot in federal income taxes anyway. The plan also includes a tax credit for home mortgage interest, since the current home mortgage interest deduction is not available to non-itemizers and is regressive since it is worth less to those in lower tax brackets.
Reducing the Tax Break for Capital GainsTo pay for the plan, the tax rate on capital gains would be raised to some unspecified level and loopholes and offshore tax avoidance would be targeted. Citizens for Tax Justice has recently decried the regressive nature of the current tax break for capital gains (which John Edwards also wants to reduce) as well as offshore tax evasion.
It's Progressive, But Is This What We Need?
Obama's plan would certainly move the federal tax code in a progressive direction, but it's not entirely clear that the thing low- and middle-income Americans need right now is a tax cut.
"I have no problem with them trying to undo all or most of the Bush tax cuts for the wealthy even if it's only for a couple of years, but there are so many huge fiscal problems that we should be very careful about proposing new trivial programs when there's so many real big programs we need to do something about," Robert McIntyre, director of Citizens for Tax Justice, told the Wall Street Journal after the Obama plan was announced.