The Working Poor Will Pay Higher Taxes after Obama's GOP Tax Compromise

[amborin]

Who Loses Under Obama's GOP Tax Compromise? The Working Poor

See full article from DailyFinance: http://srph.it/dGPhmb



When President Obama defended his tax cut compromise with the Republican Party, he insisted that he was helping working people avoid taking a pay cut. "I'm focused on making sure that tens of millions of hardworking Americans are not seeing their paychecks shrink on Jan. 1, just because the folks here in Washington are busy trying to score political points," Obama said.

But as tax experts look at the proposal more closely, it has become clear that the working poor will actually end up losing money under the new arrangement.
"Single working people with earnings below $20,000 and married couples with earnings below $40,000 are worse off under the payroll tax cut proposals in the compromise between the president and the Republicans," explains Bob Williams, a senior fellow at the Washington, D.C.-based Tax Policy Center.

Here's why: The Obama proposal substitutes a Social Security payroll tax cut for the Making Work Pay credit, which was targeted to do the most good for low-income families. Under current rules, the working poor receive $400 when they earn at least $6,452 a year through the Making Work Pay credit. Married couples with earnings above $12,900 get $800 under the program.

The compromise cuts the Social Security payroll tax from 6.2% to 4.2%, so a couple wold have to earn $40,000 to get the same $800 tax benefit. Every working-class couple earning less than that will get less than $800, meaning they lose money under the Obama proposal.


See full article from DailyFinance: http://srph.it/dGPhmb


http://www.dailyfinance.com/story/taxes/working-poor-pay-more-obama-gop-tax-compromise/19752400/


See full article from DailyFinance: http://srph.it/dGPhmb

[amborin]

1. more here:

The Obama-GOP Deal: A Tax Hike for the Working Poor\

Ever since the 2008 presidential campaign, President Obama has argued passionately for extending the Bush-era tax cuts for all but the richest 2 percent of Americans. His reasoning: the rich have fared spectacularly well over the past quarter century—incomes of the top 1 percent tripled in real terms—while incomes grew slowly or not at all for those further down the income scale. Now, in compromising with congressional Republicans, the president seems to have forgotten his own logic and agreed to big tax cuts for the rich and tax increases for the poor.

Why would the working poor pay more? Because the proposal would replace this year’s Making Work Pay (MWP) credit with a temporary reduction in the Social Security payroll tax from 6.2 percent to 4.2 percent. That’s a good deal for high earners, who got nothing from MWP (thanks to an income phaseout), but a bad deal for those making $20,000 or less.

The math works this way: The MWP credit gave as much as $400 to each single worker and up to $800 to couples. If you’re single and earned at least $6,452 (and less than $75,000) in 2010, you got $400. Married couples with earnings over $12,903 (and less than $150,000) got $800.
But you won’t get $400 from the payroll tax cut until your earnings reach $20,000; earnings have to be twice that high to yield the $800 that MWP gave to couples. So single taxpayers who earn less than $20,000 and married couples earning less than $40,000 will pay more in taxes under the payroll tax cut than under MWP (see graph). Like everyone else, those folks will keep their Bush-era tax cuts and everything else that would continue from 2010 into 2011. But because no other provisions would cut their 2011 taxes relative to 2010, those taxpayers are unequivocally worse off under the compromise in 2011 than under the tax law we have this year.

snip

If Congress and the president accept the compromise in its current form, a single worker earning $10,000 will see her taxes jump by $200 from this year to next—her $200 payroll tax cut replaces her $400 MWP. And a couple earning $25,000 would lose $300 as its $800 MWP morphs into $500 in payroll tax savings. Nothing else in the compromise tax agreement compensates for those losses.

snip

http://blogs.forbes.com/beltway/2010/12/09/the-obama-gop-deal-a-tax-hike-for-the-working-poor/

[Creative]

4. Technically, it's not a tax hike. It's a benefit cut.

[WhaTHellsgoingonhere]

2. Nice find! I wonder if those here saying the opposite are going to bother...

...reading this.

:shrug:

[amborin]

3. more here:

Report: Working Poor ‘Unequivocally Worse Off’ Under Tax Deal Than They Were This Year

As the New York Times noted this morning, most households will receive a tax cut under the proposed tax deal between President Obama and Congressional Republicans. In fact, “the only groups likely to face a tax increase are those near the bottom of the income scale — individuals who make less than $20,000 and families with earnings below $40,000.”

The reason that the working poor will be subjected to a tax increase is because Obama agreed to swap his Making Work Pay (MWP) tax credit (which was created as part of the 2009 Recovery Act) for a one-year, two-percentage point cut in the payroll tax. As the Tax Policy Center detailed, while low-income workers were able to reap the full benefit of Making Work Pay, they don’t earn enough to gain the same benefit from the payroll tax cut:

The MWP credit gave as much as $400 to each single worker and up to $800 to couples. If you’re single and earned at least $6,452 (and less than $75,000) in 2010, you got $400. Married couples with earnings over $12,903 (and less than $150,000) got $800.

But you won’t get $400 from the payroll tax cut until your earnings reach $20,000; earnings have to be twice that high to yield the $800 that MWP gave to couples. So single taxpayers who earn less than $20,000 and married couples earning less than $40,000 will pay more in taxes under the payroll tax cut than under MWP (see graph). Like everyone else, those folks will keep their Bush-era tax cuts and everything else that would continue from 2010 into 2011. But because no other provisions would cut their 2011 taxes relatively to 2010, those taxpayers are unequivocally worse off under the compromise in 2011 than under the tax law we have this year.

This translates into about $200 in higher taxes for an individual or $300 in higher taxes for a couple at the very low-end of the income scale. As the Tax Policy Center’s Bob Williams wrote, “the agreement turns on its head his repeated argument that we need to give more to the poor and ask more of the wealthy. No wonder Democrats in Congress are mad.”

snip

http://wonkroom.thinkprogress.org/2010/12/08/working-poor-deal/