Barack Obama on Taxes

Last Updated : Oct 07, 2012

Summary

President Obama has a consistent record in supporting the continuation of the Bush Tax Cuts for everyone except the top two brackets. He also supports raising the capital gains and estate tax to pre-Bush levels and voiced support in 2008 for raising them higher. While there has been little effort to reform the overall tax code while President Obama has been in office, he has introduced a plan to clamp down on tax havens, signed legislation that drastically increased tobacco taxes, enacted a tax on cadillac health care plans, introduced the Living Within Our Means and Investing in the Future plan, and pushed for the Buffett Rule. In lowering the Payroll Tax, President Obama has also overseen a drastic shift in the funding for Social Security and the relation of the program to taxes.

Record as Senator

While in the Senate, Barack Obama voted four times against legislation to repeal or alter the estate tax. This includes votes against permanently repealing th eestate tax and against legislation to raise the value of applicable estates to $5 Million and set the maximum rate at 35%. When discussing the full repeal of the estate tax, Senator Obama referred to such legislation as the "Paris Hilton Tax Break." He stated that the tax cut was not about saving small businesses and family farms as we can reform the estate tax to protect the few farms that are affected. Senator Obama also voted against the Tax Increase Prevention and Reconciliation Act of 2005, which was an extension of some of the Bush tax cuts.

2008 Presidential Campaign - Tax Plan

Senator Obama's plan for taxes during the 2008 Presidential campaign consisted of both generic and specific pledges. Along with the often repeated generic pledge to lower the overall tax rate for 95% of Americans, President Obama promised special breaks for home ownership and for seniors. The major points from this plan are shown here:

  • Reduce taxes for 95% of Americans by roughly $1000 with no increases to those making less than $250,000
  • Create a universal home owners tax credit
  • Eliminate all income taxes for senior making under $50,000 per year
  • Simplify the tax code and create a system to allow many Americans to do their taxes in less than 5 minutes
  • $500 tax credit ($1,000 a couple) to "make work pay"
  • $4,000 tax credit for college tuition.
  • 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).
  • A "savings" tax credit of 50% up to $1,000.
  • Expand the earned-income tax credit to allow single workers to receive as much as $555 a year
  • Child care credit of 50% up to $6,000 of expenses a year.
  • A "clean car" tax credit of up to $7,000 on the purchase of certain vehicles

With the exception of the "clean car" tax credit, the remaining items are refundable, which means that even those who pay no taxes at all would receive the additional money from the governmen

2008 Presidential Campaign - Fiscal Discipline

As part of the 2008 campaign, Senator Obama put out a blueprint addressing fiscal discipline. This plan included reforming the tax code so that it is simple and fair and pledging to cut down on offshore tax havens, tax shelter abuse, and corporate loopholes to go after $100 Billion in lost tax revenue. That portion of the plan also included a middle class tax cut with $1,000 of relief to 95% of workers and their families, eliminating income taxes for retirees making less than $50,000, and preventing the privatization of social security.

Tax Rates, Fairness, and Income

At a debate during the 2008 campaign, Senator Obama was questioned on his plan to raise the capital gains taxes and stated that he would not raise them above the Clinton era rate of 28%. When the moderator noted that President Clinton lowered the rate to 20% and income from the tax increases, Senator Obama stated that this effect depends on what's happening on Wall Street and how business was going.

Tax Haven Plan

In May of 2009, President Obama put out a plan to clamp down on tax havens. The first facet of the plan involved replacing tax advantages for creating jobs overseas with incentives to create them at home. This involved reforming deferral rules to curb a tax advantage for investing and reinvesting overseas, closing foreign tax credit loopholes, and using savings from ending unfair overseas tax breaks to permanently extend the research and experimentation tax credit for investment in the United States. These changes were expected to raise $103.1 billion.

The second segment of the plan involved getting tough on overseas tax havens. The administration claimed this portion would raise a total of $95.2 billion over the next 10 years. This was done by eliminating loopholes for "disappearing" offshore subsidiaries, and cracking down on the abuse of tax havens by individuals by withholding taxes from accounts at institutions that don't share information with the United States and shifting the burden of proof and increasing penalties for well-off individuals who seek to abuse tax havens. Two final items included devoting new resources for IRS enforcement to help close the international tax gap, and removing tax incentives for moving jobs overseas and curbing tax havens. 

SCHIP Reauthorization and Tobacco Taxes

In 2009 Congress passed and President Obama signed the reauthorization of the State Child Health Insurance Program. This program was paid for through large increases in tobacco taxes.

Health Care and Taxes

During the 2008 campaign, Senator Obama claimed that Senator McCain could not mirror his pledge to reduce taxes for 95% of Americans because Senator McCain was proposing a tax on "cadillac health care plans". The 2009-2010 health care reform legislation contained such a tax.

In an interview with George Stephanopolous, President Obama denied that the fee for not purchasing health insurance was a tax. When Mr. Stephanopolous read the definition of a tax in comparison to the mandate, President Obama stated that he was "reaching." The justice department argued that the mandate within the Affordable Care Act was indeed a tax and the Supreme Court upheld that view.

The Bush Tax Cuts

During 2008, Senator Obama often referred to the 2001 and 2003 Bush tax cuts as "the Bush tax cuts for the wealthy." He often spoke about his view that the cuts on the top two income brackets and the captial gains tax should be allowed to expire.

In early 2010, President Obama stated that these tax cuts have added hundreds of billions to our debt are the same policies that led us into the recession, won't create jobs, won't reduce the deficit, and will add a trillion dollars to our deficit. Later that year, President Obama stated that the sunset rules on the Bush tax cuts were done by design, because the Republicans didn't want everybody to know what those cuts would do to our deficit so they pretended like they were gonna end. He reiterated his view that the tax cuts for the middle class should be made permanent. During negotiations with Republicans, President Obama stated that they were holding middle class tax cuts hostage to keep cuts for the the wealthy in place.

Taxes and Fairness

During the 2008 election cycle, Senator Obama repeatedly referred to taxes as a mechanism to institute "fairness." During one of the primary debates with Senator Clinton, Senator Obama argued that raising the rates on capital gains taxes and other items was necessary to increase revenue, the moderator responded that the exact opposite pattern is a documented phenomenon. Senator Obama then responded that this may be true, but raising the rates was still necessary to ensure fairness.

2010 Proposed Budget

In 2010, President Obama proposed a budget that was not approved. Within the budget, the President proposed an increase in the general revenue through a few changes to the tax code. Specifically, the president proposed four changes, the first of which was raising the top two income tax brackets from 33 percent to 36 percent, and from 35 percent 39.6 percent. This was essentially removing the Bush tax cuts for the top two income brackets. The budget also proposed raising capital gains and dividends tax rates from 15 percent to 20 percent, phasing out personal exemptions and limiting itemized deductions, and reducing the value of tax deductions by approximately one-fourth.

Taxes and Social Security

President Obama has supported and signed legislation to lower the employee side of the Social Security payroll tax cut by 2%. This reduced revenue into the Social Security system was offset by taking equivalent funds from the general tax fund and placing them into the Social Security system.

The Buffet Rule

In 2011, President Obama raised the idea of a Buffett Rule in the tax plan. This rule referenced Warren Buffett and was intended to ensure that wealthy Americans earning income from capital gains were not paying lower tax rates than middle class Americans paying income tax.The rule was part of the the Living Within Our Means and Investing in Our Future Plan, which included other tax measures and limited the degree to which the best-off can take advantage of loopholes and tax rates that allow them to pay less of their income in taxes than middle-class families.

In initially describing the plan, the White House stated that it would not be implemented in a bad economy as it would not go into affect until 2013, that it was not a new tax but rather the enforcement of old taxes, and that it was not a broad new tax on investors. They also asserted that it was a myth that wealthy people paid their fair share of taxes.

In further elaborating on the rule, President Obama asserted that families who are scraping by will have to do more because the richest Americans are doing less and that this was not right and not who we are. He stated that we were going to have to make choices when it comes to paying down the deficit and investing in our future and that asking wealthy Americans to pay their fair share was better than asking the middle class to pay more.

In an April 2012 paper put out by the White House titled "The Buffett Rule: A Basic Principle of Tax Fairness," the Obama administration laid out the reasons why the Buffett rule was needed. This included assertions that the average tax rate paid by the very highest-income Americans has fallen to nearly the lowest rate in over 50 years, average tax rates for the highest income Americans have plummeted even as their incomes have skyrocketed, some of the richest Americans pay extraordinarily low tax rates—as they hire lawyers and accountants to take particular advantage of loopholes and tax expenditures, and many high-income Americans are paying less in taxes than middle class Americans in taxes.

Living Within Our Means and Investing in the Future

In September of 2011, President Obama announced the "Living Within Our Means and Investing in the Future Plan." This was a new economic model that included the American Jobs Act, health care reform, and tax reform. The tax reform included tax reform that focused on five principles: lowering the tax rates, cutting inefficient and unfair tax breaks, cutting the deficit, increasing job creation and growth in the United States, and observing the Buffett Rule.

To bring fairness to the tax code, the plan proposed allowing the 2001 and 2003 tax cuts for those making above $250,000 to expire, returning the estate tax to 2009 parameters, reducing the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000, taxing carried interest on partnerships, ending depreciation rules for corporate purchases of aircraft, eliminating the preferences for oil and gas, and modifying tax rules for dual capacity taxpayers.

To close loopholes, the plan proposed repealing the last-in, first-out (LIFO) method of accounting for inventories, repealing the lower-of-cost-or-market inventory accounting method, and eliminating preferences for the coal. industry. To address the international tax system, the proposal also included deferring deduction of interest expense related to deferred income, determining the foreign tax credit on a pooling basis, taxing excess returns associated with transfers of intangibles offshore currently, limiting shifting of income through intangible property transfers, and limiting earnings stripping by expatriated entities.

In addition to these changes, reinstating superfund taxes, making unemployment insurance (UI) surtax permanent, and increasing certainty with respect to worker classification with respect to self-employment.

2012 Tax Plan

President Obama's economic plan, which was proposed in the 2012 State of the Union Address, calls for a number of the same provisions that President Obama supported during his first term. This includes tax changes related to outsourcing, manufacturing, and fairness.

With respect to outsourcing, the plan proposes removing tax incentives to locate companies overseas through an international minimum tax. Stopping the tax deduction for companies that move overseas and instead provide a credit for
moving jobs back home.

On the manufacturing side, the President's plan proposes creating new incentives to increase manufacturing in the United States: At the same time, closing special-interest loopholes, and doubling the tax deduction for high-tech manufacturers. The plan also calls for a new tax credit that provides support for companies seeking to finance new factories, equipment, or production in communities that have been hardest hit by a company choosing to relocate or a military base shutting down.

On the subject of taxation and fairness, the President's plan calls for enacting the Buffett Rule to ensure that everyone making over a million dollars a year pays a minimum effective tax rate of at least 30%. The plan also called for eliminating tax deductions for those making over $1 million, and holding firm to the pledge not to raise taxes on those making less than $250,000 a year. In addition to these items, the plan calls for ending subsidies for millionaires, and extending the Social Security payroll tax cut.

 

The Estate Tax Repeal

On June 8, 2006 Senator Obama spoke on the Senate floor in opposition to fully repealing the estate tax for all people. He states that repealing the estate tax is a Paris Hilton tax break.

 

Tax Pledges

Speaking at a campaign event in June of 2008, Senator Obama made a number of pledges concerning tax rates. He stated that he would create a universal home owners tax credit, which would allow those who don't itemize to reduction for mortgage interest. He stated that he would eliminate all income taxes for senior making under $50,000 per year. He also pledged to simplify the tax code and create a system to allow many Americans to do their taxes in less than 5 minutes. He stated that the government would send you a form with an estimate of how much it owes you and you could dispute it if you like, or accept it and be done with your taxes.

 

SCHIP Re-Authorization

 The State Children's Health Insurance Program (SCHIP) is a program that provides health care for children and is funded through both state and federal policies.  The 2009 re-authorization of the program funded it by greatly increasing taxes on tobacco products.  Taxes were increased on all forms of tobacco from cigars to cigarettes to pipe tobacco.  Below is the section of the bill that describes these tax increases.

 

Wall Street Journal Analysis of Plan

An analysis of Senator Obama's tax proposals by the Wall Street Journal discussed 7 tax credits in Senator Obama's plan.  The difference that the article points out between these tax credits and normal tax cuts is that these are refundable tax credits, which allows the recipient to receive a check if their tax obligation is less than the refundable amount.  This means that people could actually receive a net profit from the government at the end of the year. 

  

Blueprint for Fiscal Discipline

In his blueprint for fiscal discipline, Senator Obama outline his plans for balancing the budget and eliminating waste.  Part of that plan was to end tax haven abuses.

  • Cut down on tax haven and tax shelter abuse
    • Go after $100 Billion in lost tax revenue
    • Shut down offshore tax havens and corporate loop holes
  • Tax reform that works for American families
    • Middle class tax cut
    • $1,000 of relief to 95% of workers and their families
  • Eliminate income taxes for retirees making less than $50,000
  • Never privatize social security

 

ABC News Primary Debate

As part of the ABC News primary debate, Senator Obama was asked about his plan to raise the capital gains taxes.  The moderator points out that the amount of revenue generated from the taxes increases when the rate is lowered and Senator Obama points out that he is more interested in fairness.

 

Crack Down on Tax Havens

In May of 2009, President Obama enacted a plan to crack down on overseas tax havens that he stated were being used by businesses to avoid paying their fair share of taxes. The full text of the plan can be read here.

 

Health care mandate

After if became clear that a mandate to purchase insurance would be part of the health care reform bill, questions were raised about whether or not this violated not only President Obama's opposition to a mandate, but also his promise not to raise taxes. Was a mandate to purchase health insurance under threat of punishment equivalent to a tax increase? This lead to the following conversation in an interview with George Stephanopoulos.

 

The Bush Tax Cuts

During the campaign for the Presidency, President Obama often referred to the 2001 and 2003 Bush tax cuts and the "Bush tax cuts for the rich." He repeatedly stated his plans to end the tax cuts and the only discussion was whether to end them immediately or allow them to expire in 2010.  

On July 24, 2010 President Obama used his weekly address to speak about both the financial reform legislation which had recently passed, but also to speak about the tax cuts and proposals put forth by the Republican party. The Republicans had proposed making the 2001 and 2003 "Bush Tax Cuts" permanent. President Obama addressed that plan at 3:25 in the address.

In September of 2010, President Obama and many Democrats were attempting to extend most of the Bush Tax cuts, but allow the tax cuts on capital gains and on the highest income bracket to return to higher levels. Republicans attempted to force an all or nothing package that either extended all tax cuts or none of them. President Obama referred to the this as holding the tax cuts for middle Americans hostage. In Cleveland, Ohio President Obama spoke at a campaign style rally.

Days later, President Obama spoke at a press conference at the White House and again insisted that he wanted to extend provisions of the Bush tax cuts and that it was Republican opposition that was stopping them.

The day after the 2010 elections, President Obama used his weekly address to speak about the Bush tax cuts. He stated that his desires were to compromise with Republicans in the lame duck session and extend all Bush tax cuts except those for people making over $250,000 a year.

 

Health Care and Taxes

During the 2008 Presidential debate, Senator Obama spoke about his health care plan and compared it to Senator McCain's plan. He noted his promise that he would not raise taxes on anyone making less than $250,000 per year. He stated that Senator McCain could not make that pledge because he was proposing a tax on cadillac health care plans. The 2009-2010 health care reform did indeed contain these taxes.

As part of campaign literature from the 2008 campaign, Senator Obama stated that the plan was deficit neutral and was paid for in part by holding the estate tax at the 2009 rate, and by allowing the Bush tax cuts to expire for those making more than $250,000.

 

2008 Campaign Website Statements

  

Wall Street Journal Analysis of budget

A March 10, 2010 analysis of President Obama's actual budget is critical of the President's budget and claims that there are new taxes which violate the promise not to raise taxes on those making less than $250,000.

 

Weekly Address - Taxes

In October of 2010, President Obama used his weekly address to promote tax credits. He stated that Republicans were protecting tax cuts for companies who outsourced jobs overseas.

 

The Buffett Rule - Fact Sheet

In September of 2011, President Obama annouced the Buffett rule as one of five principles of tax reform. As part of a fact sheet on the tax, the White House refuted a number of claims, including the idea that taxes would be raised in a weak economy, that it was a new tax, and that it was a tax on investing.

 

The Buffett Rule - Calculator

As part of the effort to pass the Buffett rule, the White House put out a calculator to allow people to see who would pay more under the Buffett rule. On that same page, the administration explained the purpose of the Buffett Rule.

 

The Buffett Rule and the Bush Tax Cuts

On March 31, 2012 President Obama used his weekly address to discuss the Buffett Rule. In that address he called it common sense to ask the wealthiest people in the country to pay more.

 

Speech in Support of the Buffett Rule

On April 11, 2012 President Obama spoke at a press conference with a group of wealthy Americans and stated that those people did not ask for the unfair tax provisions that reward them.

 

Voting Record

The Alternative Minimum Tax

The alternative minimum tax was created to ensure that a few of the richest Americans did not exploit loopholes to avoid paying any taxes. It was never intended to be a method of taxing the general population. Unfortunately, the amount that a person earns before the tax goes into effect was not indexed to inflation. Therefore, each year Congress must enact a "fix" to adjust the amount. Occasionally, a larger increase is proposed than inflation adjustment. Income from the tax was accounted for in the 2009 budget. According to the rules of PAYGO (Pay As You Go), a decrease in the amount of money taken in must be offset by a reduction in spending. This amendment sought to exempt the AMT from that rule, to more accurately reflect the purpose of the tax. The amendment failed with most Republicans supporting it and most Democrats opposing it in a 47-51 vote. Barack Obama voted against the amendment to exempt the AMT from PAYGO rules.

Barack Obama voted against the amendment to exempt the AMT from PAYGO rules.

The Estate Tax

The estate tax is a tax levied on the assets or estates of wealthy individuals when they pass away. The tax collects a percentage of the estates which are valued above a given amount. This amendment sought to raise the value of the estates affected from $1 Million to $5 Million, and to lower the maximum rate at which the estate can be taxed from 45% to 35%. The argument for the change was that many small farms now fell under this tax. The opposition stated that not enough revenue would be collected is the amount was raised, as the tax would affect only 0.2% of estates instead of 0.5% under the current limits. The amendment failed in a 50-50 vote with most Republicans supporting the amendment and most Democrats opposing it. Barack Obama voted against the amendment to raise the value of the estates affected to $5 Million and to lower the maximum rate to 35%.

Barack Obama voted against the amendment to raise the value of the estates affected to $5 Million and to lower the maximum rate to 35%.

The Estate Tax

In 2007, an amendment was proposed which would have raised the value of applicable estates to $5 Million and set the maximum rate at 35%. This amendment would have also made the 2006 extended rates for capital gains and dividends permanent. The amendment was supported by most Republicans and opposed by most Democrats and failed in a 47-51 vote. Barack Obama voted against the amendment to raise the value of applicable estates to $5 Million and set the maximum rate at 35%.

Barack Obama voted against the amendment to raise the value of applicable estates to $5 Million and set the maximum rate at 35%.

Full Repeal of AMT

In 2007, congress made and attempt to repeal the alternative minimum tax (AMT) completely. The legislation was defeated in a 44-53 vote with most Republicans supporting the legislation and most Democrats opposing it. Barack Obama voted against repealing the AMT.

Barack Obama voted against repealing the AMT.

Pension Protection Act of 2006

The Pension Protection Act of 2006 addressed regulations governing employer-sponsored pensions and acted to make the portions of the 2001 act which allowed higher contributions to IRAs. with the support of both parties. The bill got wide support from both parties and passed 93-5. Barack Obama voted in favor of the Pension Protection Act of 2006.

Barack Obama voted in favor of the Pension Protection Act of 2006.

Estate Tax and Extension of Tax Relief Act

In 2006, the senate voted on theEstate Tax and Extension of Tax Relief Act. This bill would have increased the estate tax exclusion to $5,000,000, effective 2015, and repealed the sunset provision for the estate and generation-skipping taxes. It would also have lowered the estate tax rate to equal the current long-term capital gains tax rate for taxable estates up to $25 million and repealed the estate tax deduction paid to states. The bill failed to pass in a 56-42 vote. Barack Obama voted against the Estate Tax and Extension of Tax Relief Act.

Barack Obama voted against the Estate Tax and Extension of Tax Relief Act.

Death Tax Repeal Permanancy Act

In 2006, the Senate voted on legislation that would have permanantly repealed the "Death" or Estate Tax. The legislation was rejected on a 57-41 vote. Most Republicans supported the legislation and most Democrats opposed it. Barack Obama voted against ending the Death Tax.

Barack Obama voted against ending the Death Tax.

Tax Increase Prevention and Reconciliation Act of 2005

The Tax Increase Prevention and Reconciliation Act of 2005 extended previously lowered dividend income and capital gains through 2010, and made an increase to the AMT exemption. It also eliminated income restrictions on high-income taxpayers for converting traditional Individual Retirement Accounts (IRAs) to Roth IRAs. Most Republicans supported the legislation and about 1/3 of teh Democrats supported it. The bill passed in a 66-31 vote. with the support of both parties. Barack Obama voted against the Tax Increase Prevention and Reconciliation Act of 2005.

Barack Obama voted against the Tax Increase Prevention and Reconciliation Act of 2005.

 

Sponsored and Cosponsored Legislation

This representative has not been identified as sponsoring or cosponsoring significant legislation related to this title.

References

[1] Website: Wall Street Journal Article: Obama's 95% Illusion Author: NA Accessed on: 06/10/2010

[2] Website: The Wall Street Journal Article: Obama's $3,000,000,000,000 Tax Hike Author: BRIAN M. RIEDL Accessed on: 06/10/2010

[3] Website: Huffington Post Article: Obama: Recession Could Delay Rescinding Bush Tax Cuts Author: NA Accessed on: 09/27/2010

[4] Website: The Washington Post Article: Obama's proposed budget spending freeze sparks concern, guesswork Author: Alec MacGillis and Amy Goldstein Accessed on: 12/01/2010

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