By BRIAN TUMULTY
Gannett Washington Bureau
WASHINGTON, D.C. - The tax proposals released by the Obama administration Monday as part of its proposed 2011 budget would provide tax cuts to most New Yorkers while hitting upper income households with the higher income tax rates imposed during the Clinton administration.
Most of the proposed changes are targeted for 2011, when the Bush tax cuts are set to expire, and would not affect the federal tax returns that must be filed by this April 15 or by next April.
Under the budget proposal, Social Security recipients and retired government employees not covered by Social Security would get a $250 payment, just as they did last year.
To help the unemployed, President Barack Obama proposed continuing an employer tax credit that caps the cost of health insurance under COBRA to 35 percent of the cost of the premium. With unemployment at 10 percent nationally, the administration is proposing to extend the eligibility for the COBRA subsidy to workers who lose their jobs through the end of this year.
The dividing line between households that would receive tax cuts and those facing higher taxes would be $200,000 for individuals and $250,000 for couples if Congress decides to accept the president's proposal.
Families with income below those thresholds would continue to benefit from the lower income tax rates enacted during the Bush administration. Households with income above those amounts would be subject to a 36 percent income tax rate. And the highest income families would face a 39.6 percent rate.
The current top federal tax rate is 35 percent.
In addition, high-income households would pay a 20 percent tax rate on capital gains and dividends, while the current top rate of 15 percent would be retained for families with incomes below Obama's dividing line.
Michael Connolly, a spokesman for the anti-tax Club for Growth, said the administration's plans for taxing high-income families would stymie the economic recovery.
"Raising taxes on anybody now is absolutely the wrong thing for the economy right now,'' Connolly said. "We need to lower taxes across the board to spur job growth and grow the economy.''
Imposing new taxes on families who are the most able to pay them will enable Washington to begin reducing the federal deficit, said Dean Baker, an economist at the liberal-leaning Center for Economic and Policy Research.
Baker commended the administration for proposing to continue tax cuts for low-income families, such as the Making Work Pay payroll tax reduction of up to $400, which would continue through 2011.
Obama also proposed expanding the Earned Income Tax Credit for families with three or more children, increasing the Child and Dependent Care Tax Credit, and expanding the SAVER's credit that matches IRA contributions by low-income households.
For middle income families struggling to pay for college, the administration proposed a permanent extension of the $2,500 American Opportunity Tax Credit. The credit applies to 100 percent of the first $2,000 of tuition and related college expenses, plus 25 percent of the next $2,000. The credit phases out for singles earning more than $80,000 and couples with incomes over $160,000.
Gannett ContentOne - Washington, D.C.