Obama’s Middle Class ‘Tax Cut’ Would Raise Taxes by $1.3 Trillion Over Eight Years

July 9, 2012 - 5:31 PM

President Obama announces tax proposals

President Obama announces his new tax proposals, at the White House on July 9, 2012. (AP Photo)

(CNSNews.com) – The policy that President Obama described Monday as a middle-class tax cut would result in taxpayers paying nearly $1.3 trillion more over an eight-year period than they would have under his previous proposal, according to Congressional Budget Office figures.

“I’m calling on Congress to extend the tax cuts for the 98 percent of Americans who make less than $250,000 per year for another year,” Obama said at the White House Monday.

Obama’s proposal would mean the tax rates on people (and small businesses) making $250,000 or more a year would rise at the end of 2012, as scheduled, while tax increases on everyone else would be delayed by one year.

Currently, all tax rates are scheduled to rise at midnight on December 31, 2012, when the lower Bush tax rates are due to expire.

The new policy is a shift from the one Obama presented in his 2013 budget, which called for the lower Bush tax rates for Americans making less than $250,000 a year to be made permanent.

While the CBO has not yet done an analysis of Obama’s new suggestions, its analysis of his previous proposal offers insight into just how large a tax increase Obama is in fact proposing.

In its analysis of his 2013 budget proposal, CBO estimated that the government would forgo $1.34 trillion in revenue from 2013 to 2022. For the period 2014 to 2022, that figure is $1.26 trillion.

In other words, had Obama’s original plan been enacted, the government would have taken $1.26 trillion less from Americans making less than $250,000 per year between 2014 and 2022 because current tax rates for those earners would have remained in place.

Now, however, Obama plans to allow those rates to rise in 2014 -- meaning that the government will not be giving up the $1.26 trillion estimated by the CBO. Instead, under Obama’s new proposal, the government will be collecting that money when rates rise in 2014.

This means that if Obama’s new proposal is enacted, middle-class Americans could see their taxes go up by $1.26 trillion between 2014 and 2022, contrary to the president’s claim that his proposal is a tax cut for the middle class.

The figures come from Table 3 of CBO’s March analysis of Obama’s 2013 budget. In that table, CBO breaks down the effect of Obama’s revenue proposals on the federal budget.

The budget forecasting agency found that if Obama permanently prevented tax increases on those making less than $250,000 per year, revenues would be $1.34 trillion lower than if he allowed taxes to rise as scheduled.

The analysis foresees the government giving up more and more revenue over time as the economy improves, starting with $75 billion in 2013 and ending with $174 billion in 2022.

Now, however, Obama wants to let taxes rise one year later than under current law, meaning that the government should be collecting the $1.26 trillion CBO said it would otherwise forgo.