“There is a large degree of uncertainty,” says Mark Nash, a partner with PricewaterhouseCoopers Private Company Services practice and co-author of the accounting firm’s “2009 Guide to Tax and Financial Planning.”
“Obama has stated that he plans to repeal Bush’s tax cuts and we thought that could happen as soon as 2009, but in recent days he has said the economy is his top priority so he may not implement those roll backs quite so swiftly.”
Bill Gale, vice president and director of economic studies for the Brookings independent research institute and co-director of the Tax Policy Center, agrees.
“Those proposals [to raise taxes on the wealthy] were put together more than a year ago and we live in a different world right now,” says Gale. “We can’t do everything all at once so the president will have to decide what his priorities are and initially at least that has to be the economy and the financial problems we’re facing.”
That said, it’s safe to say that if Obama’s tax plan does get the Congressional green light—in 2009 or at any other point during his four-year term—some families will feel the sting while others will reap the benefit of a bigger monthly paycheck.
“Most people would see their taxes change in some way, but it depends on how much you earn,” says Gerald Prante, senior economist for the Tax Foundation, a nonpartisan educational group.
Here’s a look at how your tax bill may change.
If you’re among the 95 percent of Americans who make less than $250,000, you will generally see your tax bill drop under Obama’s proposed plan.
The official Barack Obama Web site states that “middle class families will see their taxes cut—and no family making less than $250,000 will see their taxes increase.”
Much of that tax relief would come from new credits. Among them:
- A new “Making Work Pay” tax credit for 150 million workers, providing a refundable tax cut of $500 per worker or $1,000 for working couples.
- A refundable $4,000 “American Opportunity” tax credit, covering 100 percent of the first $4,000 of qualified tuition expenses.
- A Universal 10-percent Mortgage Interest Tax Credit to help offset mortgage interest payments and make homeownership more affordable to lower and middle income families. The universal credit will provide an average tax cut of $500 to 10 million homeowners who do not currently itemize.
- An Earned Income Tax Credit (EITC) expansion to boost the number of working parents eligible for Earned Income Tax Credit benefits, increase the benefits available to noncustodial parents who fulfill their child support obligations” and reduce the EITC marriage penalty.
- Increased benefits for child care through reform of the Child and Dependent Care Tax Credit by making it refundable and allowing low-income families to receive up to a 50 percent credit on the first $6,000 of child care expenses.
- A 50-percent federal match on the first $1,000 of retirement savings for families that earn less than $75,000.
- A new policy that would eliminate all income tax of seniors making less than $50,000 per year.
Middle-income taxpayers, in particular, should also watch closely next year to see if Congress adjusts the Alternative Minimum Tax (AMT) threshold, a move Obama has said he supports.
The AMT was originally designed to ensure wealthy individuals pay a minimal level of income tax, requiring them to use a separate calculation to determine their liability to Uncle Sam.
Congress typically “patches” the AMT on an annual basis by temporarily raising the exemption threshold.
Should lawmakers fail to do so, however, the Tax Policy Center estimates that by 2010 89 percent of married couples with two or more kids and an adjusted gross income of between $75,000 and $100,000 will be hit with the AMT.
Obama has pledged to repeal President Bush’s tax cuts on the two highest marginal tax rates of 33 percent (which kicks in at $164,550 for single filers and $200,300 for married filers) and 35 percent (which kicks in at $357,700.)