Obama turned his call for middle-income tax breaks into law within a month of taking office, incorporating a $400-a-person tax credit for workers into the 2009 stimulus law. In late 2010, with the economy still weak and Republicans gaining political clout, Obama agreed to an $858 billion tax cut that extended all of the George W. Bush-era tax cuts for two years.
“The tax policy has been substantially in the conservative direction whereas the rhetoric has gone in the exact opposite direction,” said Don Susswein, a tax aide to former Republican Senator Bob Dole who said he supported Obama in 2008.
Today, as Americans reach the fourth annual tax-filing deadline since Obama became president, they are encountering a tax system that relies on the architecture he inherited from Bush. On top of that regime, Obama has added targeted tax breaks for small businesses, college students and low-income families, along with some tax increases for top earners to finance the expansion of health insurance coverage.
‘Not Hugely Different’
“The tax system is not hugely different from what it was in 2008,” said Leonard Burman, a professor at Syracuse University in New York who worked in the Treasury Department under President Bill Clinton. “The tax system is still too complicated, still unfair and still doesn’t raise enough money to pay for the government.”
The recession and Obama’s tax cuts pushed federal revenue as a share of the economy to a 60-year low. Income tax rates haven’t changed. The estate tax affects fewer people and at a lower rate than when Obama took office. Workers’ payroll taxes were reduced during 2011 and 2012.
Many of the major tax provisions of the 2010 health law haven’t taken effect. Tax credits to help people purchase health insurance begin in 2014 and tax increases on the wages and investment income of the highest earners start in 2013.
“The president has been very successful in following through on the promises that he made in the campaign,” said Jason Furman, who advised Obama during the campaign and is now deputy director of the National Economic Council. “The core promise was that he wasn’t going to raise taxes on middle-class families.”
During the campaign, Obama made a distinction between the majority of taxpayers and top earners — who he defined as individuals making more than $200,000 a year and married couples making more than $250,000.
“I can make a firm pledge: Under my plan, no family making less than $250,000 a year will see any form of tax increase — not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes,” he said in a Sept. 12, 2008, speech in Dover, New Hampshire.
Still, Obama has signed bills — particularly the health- care law — that raised taxes paid by some people who earn less than $250,000 a year.
‘Didn’t Keep His Word’
The 2010 health law included a new 10 percent excise tax on indoor tanning, a higher threshold for taxpayers to itemize the medical-expense deduction and limits on using tax-advantaged accounts for over-the-counter drugs. The law eventually will require taxes for high-cost health insurance plans and impose a penalty on people who don’t purchase insurance.
“He didn’t keep his word on that,” said Grover Norquist, the anti-tax activist, who maintains a list of Obama-backed tax increases for middle-income households on the website of his group, Americans for Tax Reform. “I’m sure he told the truth somewhere and we missed it.”
Austan Goolsbee, who advised Obama during the campaign and in the White House, cautioned against singling out a portion of the health care law.
“Middle class taxes are way down,” said Goolsbee, who has returned to his previous job as a business school professor at the University of Chicago. “The president cut taxes for virtually everyone in the country, and I kinda think that one speaks for itself.”
Average Income Tax
In 2010, the average income tax rate for a median-income family was 4.55 percent, according to the Tax Policy Center, a nonpartisan research group in Washington. From 1955 through 2007, that rate hadn’t been lower than 5.34 percent.
Obama hasn’t been able to end the Bush-era tax cuts for the highest earners or raise taxes for private equity managers. Each of his budget proposals called for allowing the tax cuts for high earners to expire, pushing the top income tax rate to 39.6 percent from 35 percent. He also has proposed higher tax rates for the capital gains and dividends of top earners, along with caps on deductions and other tax breaks for that group.
During 2009 and 2010, Democrats controlled the House of Representatives and at times had a reliable 60-vote bloc in the Senate that allowed them to advance legislation. They didn’t vote on extending the Bush tax cuts until after the 2010 election, and by then, they were unable to separate the breaks for high earners from those for other taxpayers.
“It was a major mistake not to do that very early in 2009,” said Susswein, a principal at McGladrey & Pullen LLP in Washington. “He would have established that wedge or that contrast.”
At the end of 2010, Congress extended all of the Bush-era tax cuts, including those for high earners. Obama agreed to set the estate tax with a $5 million per-person exemption and a 35 percent top rate, more generous to the wealthy than the 2009 tax parameters. The estate tax had been repealed altogether in 2010.
The 2010 law allowed the $400 tax credit for workers to end and replaced it with a 2 percentage-point cut in the payroll tax. Congress has since extended the payroll tax cut through 2012.
With the payroll tax cut, a family earning $50,000 in wages is paying $1,000 less a year in federal taxes in 2012 than it was in 2008. Most of Obama’s other tax cuts depend on households’ particular situations and whether they use targeted breaks for such things as tuition.
Goolsbee said tax policy during the Obama years reflects a “holding pattern” as the two parties figure out if they can reach a “grand bargain” on taxes and spending.
The 2010 law, he said, “seemed like a recognition by both sides that we’re still basically in the depths of the downturn so the fight over high-income tax rates would have to be revisited in 2012.”
That discussion is taking place amid a presidential campaign. Obama has been pushing for a “Buffett rule” setting a minimum tax rate of 30 percent for households making more than $2 million a year. Republicans blocked an attempt to advance the measure in the Senate yesterday.
His expected Republican presidential opponent, Mitt Romney, wants to cut marginal tax rates by 20 percent in each bracket and pay for the change by curtailing tax breaks. He wants to reduce the corporate tax rate to 25 percent from 35 percent and end taxation of investment income for households making less than $200,000.
“If Americans think today’s tax day is painful, just wait until a second Obama term,” Andrea Saul, a spokeswoman for Romney, said in a statement. “After three straight years of chronic unemployment and slow economic growth, Americans can’t afford four more years of Barack Obama’s job-destroying policies.”
Some items that Obama talked about during the 2008 campaign have disappeared from the administration’s agenda. For instance, he had proposed eliminating income taxes for elderly people making less than $50,000 a year and allowing people who don’t itemize their deductions to take a 10 percent credit for mortgage interest.
Furman said those proposals were dropped before Obama took office when it became clear the budget deficit would be worse than anticipated.
The most far-reaching campaign promise, Burman said, was the pledge to prevent tax increases for all but the highest earners.
“That’s ruled out any kind of meaningful tax reform, and it’s made it virtually impossible to use the tax system as a way to get the budget under control,” he said. “I don’t think he can make policy by saying that 95 percent of the population is insulated from any future tax increases.”