from www.factcheck.org
Stimulus Bill Bravado
February 13, 2009
Obama claims the stimulus legislation will do all sorts of things. But there are no guarantees.
Summary
In recent weeks, in his pitches to Congress and the public on the need to pass the economic stimulus bill, Obama has made several claims about what it would do. (Republicans, too, have made stimulus boasts of their own.) But these pronouncements are not a sure thing:
Obama repeatedly said the plan "will save or create up to 4 million jobs." Obama downgraded that estimate to 3.5 million once the House and Senate agreed on a less-expensive compromise bill. The projections come from at least three economists, but all say there is great uncertainty in their estimates.
Republican House members claimed their substitute legislation tops that, creating "6.2 million jobs." But their calculation is even more fraught with uncertainty and is not backed up by independent economists.
Obama said the bill doesn't contain "a single earmark." But whether one calls them "earmarks" or not, the Senate certainly added items that will benefit particular states. For example: $50 million for programs under the California-Bay Delta Act and $500 million for National Institutes of Health facilities in Bethesda, Md.
Obama claims that funds in the bill will result in "every American" having health records computerized "within five years." But experts doubt it can be done that quickly.
The president also says electronic health records will save billions of dollars. But the Congressional Budget Office says that even a decade of expected savings are unlikely to pay back the government what the government will spend on health IT.
The president said the bill will modernize the nation's electricity grid, reducing consumption by 2 percent to 4 percent. That's optimistic. Industry reports say that a new grid could reduce energy consumption by up to 4 percent, but not until 2030 and at a cost much greater than the stimulus bill would cover.
Analysis
Amid much debate and disagreement over an economic stimulus package, President Barack Obama has been pushing a bill that he says will help the economy and American workers in all sorts of ways. The two chambers of Congress have agreed on compromise legislation that comes close to what Obama backed. In his prime-time press conference Feb. 9, an op-ed that was published in the Washington Post and in speeches to both the public and government employees, Obama has made his case again and again, citing various claims about what the bill would do. We take a look at a few of his not-so-certain pronouncements.
Jobs, Jobs, Jobs
In the Feb. 9 press conference, Obama said: "And that is why the single most important part of this Economic Recovery and Reinvestment Plan is the fact that it will save or create up to 4 million jobs – because that's what America needs most right now."
The president, along with stimulus supporters, has made this claim several times, stating that the House bill would create either 3 million or 4 million jobs by the end of 2010. On Feb. 11, Congress agreed on compromise legislation, which is $20 billion to $40 billion less expensive than bills passed by the two chambers; Obama said that bill would create 3.5 million jobs. The numbers are based on projections made by several economists – but those economists aren't completely sure. They can't be. As we pointed out recently on The FactCheck Wire, economic modeling is relatively new, and largely untested, particularly with the kind of recession figures we’re seeing today. Obama would do better to say "could create" or "experts estimate," rather than making such a definitive claim. Mark Zandi, chief economist at Moody’s Economy.com, told the House budget committee on Jan. 27 that the House bill would lead to 3 million more jobs by the end of 2010 than there would be without the stimulus. A week earlier, he put the number at 4 million. But, as he told the Associated Press, there’s no guarantee.
Zandi, quoted by the AP: The models are based on historic experience. And we're outside anything we've experienced historically. We're completely in a world we don't understand and know.
The nonpartisan Congressional Budget Office gave a significant range in its job creation figures, saying that the bills would create anywhere from 1.2 million to 3.6 million jobs by the end of next year. Christina Romer, chair of the Council of Economic Advisers, and Jared Bernstein, from Vice President Biden’s office, published a report in early January that said between 3.3 million and 4.1 million jobs would be created as the result of a slightly smaller recovery plan. But, they acknowledged, “[T]here is considerable uncertainty in our estimates: both the impact of the package on GDP and the relationship between higher GDP and job creation are hard to estimate precisely.” They called their range “reasonable.”
Yet another economist, Allen Sinai, founder of Decision Economics Inc, has said the stimulus could save 3 million to 4 million jobs as well. But, he told the New York Times, “I’m not sure I believe my own models. We’re in uncharted waters here.”
With several economists coming up with similar figures, Obama seems to be on fairly safe ground. Still, Nobel laureate economists can’t agree on whether the stimulus bill contains the right kind of measures to aid the crisis-plagued economy or how much help spending and tax relief will bring. Nor can the economists the president relies on present their projections with a high degree of certainty. Obama might be right about the job-creation ability of the plan, but it’s also possible the effect of the stimulus will be more in line with the low end of CBO’s range – or, in fact, it could have no effect at all.
Jobs, Jobs, Jobs, the Republican Version
House Republican Leader John Boehner and Republican Whip Eric Cantor have repeatedly claimed that a GOP alternative stimulus plan would create “twice the jobs as the House Democrats’ plan at half the cost" – that's 6.2 million jobs, according to Boehner. Sounds even better, right? If only someone could be certain of that number.
The figure comes from the House Republicans’ own calculations. When we asked whether any independent economists endorsed the Republican claims, a spokesman for the Republican staff of the Ways & Means Committee produced none. CBO did not analyze the GOP's substitute, which failed by a vote of 170 - 266 on Jan. 28.
How did Republicans arrive at their 6.2 million figure? The Web site of Rep. Dave Camp, the ranking Republican member of the Committee on Ways & Means and a sponsor of the substitute, explains that the GOP's estimate is based on a 2007 paper by economists Christina and David Romer, a husband-wife team at the University of California, Berkeley. Yep, that's the same Christina Romer who is now chair of Obama's Council of Economic Advisers. The Romers' analysis of tax changes since World War II concluded that "tax changes have very large effects" on the economy. Specifically, they said their data suggested that a "tax increase of one percent of GDP [gross domestic product] lowers real GDP by about three percent" or lower, but at least by 2.2 percent. Flipping the Romers' calculations, GOP staffers figured that a tax cut of 1 percent of GDP would produce growth of 2.2 percent. Then, using a different report (Christina Romer's analysis of Obama's plan), the Republicans further calculated that their own party's proposed cuts would yield 6.2 million jobs over two years.
Republicans point to Romer's position in Obama's administration, as if to prove their figures are justified. However, these aren't her calculations. Plus, the Romers stressed in that 2007 report that their estimates were larger than other economists had come up with and "are not highly precise." (Indeed, in the CBO’s analysis, which it says gives a range that "encompasses a majority of economists’ views," the nonpartisan group gives a high and low multiplier for several government measures; the tax cut multiplier ranges from 0.5 to 1.7.) More recently, Christina Romer, in a Jan. 9 paper estimating the effects of the Democratic plan, didn't use the 2.2 multiplier even though that meant a lower job estimate for the tax cuts in Obama's plan. Instead, she used a 1 percent multiplier.
We were unable to contact Romer directly, but a White House spokesperson told us the GOP analysis "makes a fundamental error" by assuming that added jobs from tax cuts would show up by the end of next year. "It fails to take into account the fact that tax changes affect the economy with delays," the spokesperson said. Actually, even if the 2.2 multiplier were correct, the number of jobs added due to the GOP's proposed tax cuts would be only 1.7 million by the end of next year, according to White House calculations. GOP leaders themselves acknowledged in a document detailing their calculations that any such projections "are largely speculative, and the conclusions are generally dictated by the assumptions made by the authors."
In other words, who knows? As macroeconomist Arnold Kling recently wrote, we'd have to construct alternate universes and try out different policies to see what effect tax cuts actually have in real life. Absent that, we're left with models that reflect economists' (or politicians') biases.
No Earmarks? Obama said in his Monday night press conference that the stimulus "does not contain ... a single pet project, not a single earmark, and it has been stripped of the projects members of both parties found most objectionable."The “pet projects” may not have been so easily identifiable in the House bill, but watchdog groups picked out some in the Senate version. "To say there are no earmarks, would not be an accurate statement. There are very few," said Citizens Against Government Waste President Tom Schatz, "[M]embers [of Congress] have gotten much more creative."Schatz rattled off a few examples that were in the Senate version: $198 million for benefits for Filipino veterans; $2 billion for a near-zero emissions coal plant, which would most likely go to the FutureGen project in Illinois; $500 million for National Institutes of Health facilities in Bethesda, Md. Members’ names weren't attached to the items. Still, Sen. Dick Durbin of Illinois has supported FutureGen, and why wouldn’t Maryland Sens. Barbara Mikulski and Benjamin Cardin be pleased to see funds go to their state? Such items meet the group's definition of what qualifies as "pork." For the record, funds for the near-zero emissions plant were stripped out of the final conference report, but the Filipino veterans benefits and funds for NIH buildings are still there. The investigative journalism site ProPublica, in a story published with MSNBC.com, identified several more questionable projects that members argue create or save jobs – for their own constituents. The Associated Press, too, found it noteworthy that Obama promised an audience in Elkhart, Indiana, that a bill with no pork would bring roadwork and perhaps a new downtown overpass.Yet, any of these pet projects very well could lead to jobs. What critics see as "pork," people who stand to benefit would see as necessary funds to boost local economies.
Pork for Mice?And, as Schatz notes, it’s much more difficult to identify who may have requested what. Republicans have charged that Speaker of the House Nancy Pelosi benefits from some pork in the compromise legislation: She has long pushed for protection for the endangered salt marsh harvest mouse in wetlands in the San Francisco Bay area, and the final bill calls for millions for wetlands restoration that could pay for such a “pet project.” But it was the Senate bill that said a sum of money ($50 million) “may be used for” programs under the California Bay-Delta Restoration Act. The House bill included no such stipulation, calling only for $50 million for a “Watershed Rehabilitation Program.” It’s worth noting that the Senate also stipulated that another $50 million “may” be used for the Central Utah Projection Completion Act. Would that be $50 million of pork for Republican Sens. Orrin Hatch and Robert Bennett? Or a necessary stimulus for a vital project? The funding for both the California and Utah programs survived in the final conference report.A Pelosi spokesman told the Washington Times that she had no involvement in directing the funds to the harvest mouse project, noting that “restoration is key to economic activity, including farming, fisheries, recreation and clean water.” Obama may be right about the House bill, which was indeed stripped of a few items that representatives questioned, as he said. Our colleagues at PolitiFact.com also called the office of Republican Rep. Jeff Flake of Arizona, an outspoken opponent of earmarks, and spokesman Matthew Specht told them: "Yeah, we agree that the House version can probably be considered earmark-free."
Health IT
In his op-ed, and in his Jan. 24 video address, Obama repeated a claim about the stimulus bills' investment in electronic health records:
Obama op-ed, Feb. 5: Now is the time to protect health insurance for the more than 8 million Americans at risk of losing their coverage and to computerize the health-care records of every American within five years, saving billions of dollars and countless lives in the process.
During the presidential campaign, Obama often talked about electronic health records and the money that technology would save. But would it be billions? And can we computerize all of Americans’ health records in five years? Experts say it will be tough to speed up adoption that quickly, but they agree it's a laudable goal with plenty of money-saving, and health-improving, benefits. Health IT can do away with duplicate tests, reduce medical errors and bad drug interactions, and increase prevention efforts.
We dug into this issue last summer, finding that the adoption of electronic medical records has moved along at a crawl – only 12 percent of physicians and 11 percent of hospitals had electronic records systems in 2006, according to the CBO. The majority of doctors haven’t implemented the technology, experts told us, because it’s expensive, because not all of the many systems that are available can communicate with each other, and because it takes some time for an office to change its operations in such a major way. Dr. Rainu Kaushal, a professor of public health at the Weill Medical College of Cornell University, told us that the right policies could lead to 90 percent of practitioners adopting electronic systems, but "I think it's pie in the sky for the next five years." Kaushal said eight to 10 years was a reasonable estimate.
Catherine Desroches, an instructor at the Harvard Medical School who has researched health IT, told us it would take “tens of billions to hundreds of billions of dollars to really have a fully interoperable national system.”
The compromise legislation includes $19 billion to speed up adoption. Most of the money would be in the form of payment incentives from Medicare and Medicaid for physicians who use electronic records.
We called Desroches again to ask for her take on the stimulus bill. Using the money for incentives for health care providers and infrastructure support, she said, could increase the rate of adoption, since those were the two main barriers she found in a survey of health IT use. As for getting all records computerized in five years, she said: "It’s certainly not going to be easy. But with a concerted effort at the federal level that actually has money behind it we could definitely speed up adoption."
While the CBO agrees that health IT will save the government money in the long run, those savings are far outweighed by what the government will spend for the next 10 years.
CBO: Increased spending in the near term would be partially offset by Medicare savings in later years; as a result, those provisions would increase deficits by about $30 billion through 2014 but would yield savings in later years, reducing the net 11-year impact to $17 billion total through 2019.
It's worth noting that the CBO report only looks at government savings, not what insurance companies, doctors, hospitals or patients could potentially save from the use of health IT.
Power Grid
During an early February speech at the Department of Energy to endorse the stimulus package, Obama said that "just these first steps towards modernizing the way we distribute electricity could reduce consumption by 2 to 4 percent." He didn't mention any specific "steps," but according to the Senate Appropriations Committee, the final compromise bill includes $11 billion for smart-grid efforts, including those to modernize the electricity grid. Industry projections show that the U.S. could reduce consumption by as much as Obama says, but it will take more than 20 years and a lot more money than the stimulus provides.
A study by the Electric Power Research Institute, an industry think tank, concluded that the deployment of a so-called smart grid "could potentially" reduce annual U.S. energy consumption by 1.2 percent to 4.3 percent of projected electricity usage in 2030.
But EPRI was looking at much more than the "first steps" that are in the stimulus bill. Rather, the EPRI report's projected consumption decline would come about through full transition, nationwide, to a smart grid that wouldn't be completed until 2030. A smart grid is an umbrella term for a variety of technological improvements to or replacements for the current system of electrical distribution and transmission from power sources to homes and businesses. Such improvements include wires that can handle more powerful currents and systems that can show a homeowner how much electricity a particular household item is using.
Rebis James, director of the Energy-Technology Assessment Center for EPRI, told FactCheck.org that only a "small fraction of homes and distribution centers" currently have such communication systems. A study commissioned by the Edison Electric Institute concluded that the cost of implementing a smart grid nationwide "will total about $880 billion."
But money might not be the issue. As one power line developer told The New York Times, “We absolutely have no problem — underscore, no problem — financing our transmission grid.” Rather, the developers all point to regulatory hurdles that they say are hindering smart grid implementation.
When asked how close the U.S. might be to attaining the savings outlined in the EPRI report, James replied that it was "a long way away."– by Lori Robertson and Justin Bank
Sources
Zandi, Mark. “The Economic Outlook and Budget Challenges.” Written Testimony of Mark Zandi before the Committee on the Budget, U.S. House of Representatives, 27 Jan. 2009.
Zandi, Mark. “The Economic Impact of the American Recovery and Reinvestment Act,” 21 Jan. 2009.
Fram, Alan. “FACT CHECK: Will stimulus create more than 3 million jobs like Democrats say? Maybe not.” Associated Press, 2 Feb. 2009.
Elmendorf, Douglas W. “Testimony on the Economy and Stimulus.” Congressional Budget Office, Director’s Blog, 27 Jan. 2009.
Elmendorf, Douglas W. Letter to Sen. Judd Gregg. Congressional Budget Office, 11 Feb. 2009.
Romer, Christina and Jared Bernstein. “The Job Impact of the American Recovery and Reinvestment Plan,” 9 Jan. 2009.
Andrews, Edmund L. “Economy Shed 598,000 Jobs in January.” New York Times, 6 Feb. 2009.
“Democrats’ ‘Stimulus’ Bill Under Fire, House GOP has a Better Solution.” U.S. House Republican Leader John Boehner’s blog, 2 Feb. 2009.
Cantor, Eric. “Smarter, Simpler Stimulus.” U.S. House of Representatives Office of the Republican Whip, 30 Jan. 2009.
The President’s Senior Economic Advisors’ Research Shows the Republican Substitute Could Create 6.2 million Jobs over the Next Two Years. U.S. House of Representatives Ways & Means Republican Press Office, 28 Jan. 2009.
State by State Breakout of Job Creation Under the Republican Substitute to H.R. 1. U.S. House of Representatives Ways & Means Republican Press Office, 5 Feb. 2009.
Romer, Christina D. and David H. Romer. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” University of California, Berkeley, March 2007.
DeLong, Brad. “Dueling Multipliers.” Grasping Reality with Both Hands blog, 29 Jan. 2009.
“Results of Applying the Methodology Advocated by Dr. Christina Romer and Dr. Jared Bernstein for Measuring the Job Creating Effects of the Republican Substitute to H.R. 1.” U.S. House of Representatives Committee on Ways and Means Republicans, 28 Jan. 2009.
DeLong, Brad. “Christie Romer Is Confirmed.” Grasping Reality with Both Hands blog, 31 Jan. 2009.
Grabell, Michael. “The Stimulus Bills: House vs. Senate.” ProPublica, 10 Feb. 2009.
Interview with Catherine Desroches, instructor at the Harvard Medical School,” 9 Feb. 2009.
Congressional Budget Office. “H.R. 1 American Recovery and Reinvestment Act of 2009.” Cost Estimate, 26 Jan. 2009.
111th Congress, 1st Session. H.R. 1, as passed by U.S. House of Representatives.
111th Congress, 1st Session. H.R. 1 Amendment, as passed by the U.S. Senate, 10 Feb. 2009.
Interview with Tom Schatz, president of Citizens Against Government Waste, 9 Feb. 2009.
Grabell, Michael and Christopher Weaver. “In the Stimulus Bill: An Earmark by Any Other Name.” ProPublica, 5 Feb. 2009.
Woodward, Calvin. “FACT CHECK: Obama has it both ways on pork.” Associated Press, 9 Feb. 2009.
“Stimulus bill includes projects that some consider earmarks.” PolitiFact.com, Feb. 2009."
"Power Delivery and Utilization Update." Electric Power Research Institute, Jan 2009.
"Transforming America's Power Industry: The Investment Challenge, 2010-2030," prepated by the Brattle Group for The Edison Foundation. Nov 2008.
Wald, Matthew L. "Hurdles (Not Financial Ones) Await Electric Grid Update." The New York Times, 6 Feb 2009.
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Monday, February 16, 2009
Monday, September 22, 2008
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years
from www.irs.gov
IR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule. They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
Subscribe to IRS Newswire
IR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule. They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
Subscribe to IRS Newswire
Tuesday, August 12, 2008
Most companies in US avoid federal income taxes
By JENNIFER C. KERR, Associated Press Writer
2 HOURS AGO
WASHINGTON - Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.
The study by the Government Accountability Office, expected to be released Tuesday, said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.
Collectively, the companies reported trillions of dollars in sales, according to GAO's estimate.
"It's shameful that so many corporations make big profits and pay nothing to support our country," said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.
An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes.
"Half of all business income in the United States now ends up going through the individual tax code," Edwards said.
The GAO study did not investigate why corporations weren't paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.
More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.
The GAO said it analyzed data from the Internal Revenue Service, examining samples of corporate returns for the years 1998 through 2005. For 2005, for example, it reviewed 110,003 tax returns from among more than 1.2 million corporations doing business in the U.S.
Dorgan and Levin have complained about companies abusing transfer prices _ amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities. The GAO did not suggest which companies might be doing this.
"It's time for the big corporations to pay their fair share," Dorgan said.
2 HOURS AGO
WASHINGTON - Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.
The study by the Government Accountability Office, expected to be released Tuesday, said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.
Collectively, the companies reported trillions of dollars in sales, according to GAO's estimate.
"It's shameful that so many corporations make big profits and pay nothing to support our country," said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.
An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes.
"Half of all business income in the United States now ends up going through the individual tax code," Edwards said.
The GAO study did not investigate why corporations weren't paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.
More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.
The GAO said it analyzed data from the Internal Revenue Service, examining samples of corporate returns for the years 1998 through 2005. For 2005, for example, it reviewed 110,003 tax returns from among more than 1.2 million corporations doing business in the U.S.
Dorgan and Levin have complained about companies abusing transfer prices _ amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities. The GAO did not suggest which companies might be doing this.
"It's time for the big corporations to pay their fair share," Dorgan said.
Saturday, August 2, 2008
New Tax Credit Amounts to a Free Loan for $ 7,500
from www.washingtonpost.com
By Kenneth R. HarneySaturday, August 2, 2008; Page F01
Anyone who has been hesitant about jumping into real estate until conditions settle down should keep in mind these dates: April 9, 2008, through June 30, 2009.
They mark the eligibility time span for the home-purchase tax credit created by the new housing bill. If you have not owned a house during the past three years and can go to closing before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).
The new credit is expected to benefit hundreds of thousands of buyers. The specifics of the credit changed in the past month as the Senate and House negotiated a final compromise, so here's a quick overview of the credit in its final form:
· The basic idea: To jump-start housing sales and clear out unsold real estate inventories, Congress is offering tax credits to pull in new buyers. Within the designated time period, buy any house -- new, old, any location or condition, any price range -- and the IRS will cut up to $7,500 off your tax bill for either this year or next. For example, if you're an eligible buyer this year and you owe the IRS $4,000 on your total 2008 income tax bill, your $7,500 tax credit could wipe out everything you owe plus get you a $3,500 refund. The new tax credit is what the government calls "refundable": If your tax bill is less than the credit amount, you get the difference back from the Treasury.
· Eligibility rules: Do you own a home? If so, you're not eligible for the credit. Did you sell your home more than three years ago and now rent? You are eligible. You're also eligible if you have never owned a home. Close on a house before June 30, and you can claim a credit of up to 10 percent of the purchase price of the property, up to $7,500. If your adjusted gross income exceeds $150,000 ($75,000 if you're single), the credit maximum begins to phase down. You cannot claim the credit if you are a nonresident alien, financed the property using a state or local housing agency's tax-exempt bond mortgage, or do not plan to use the house as your principal residence. Buyers who use the District's first-time-buyer credit program cannot double-dip and use the new federal credit, too.
Unlike some other tax credits, this one requires beneficiaries to repay the credit. Starting in the second tax year after purchase and continuing for up to 15 years, taxpayers are expected to make pro rata repayments to the government on their federal filings. Over a 15-year payback period for the full $7,500 credit, the cost would be $500 a year. If you sell the house before the end of the repayment period and you have no gain on the sale, you won't be expected to pay the credit back from the proceeds. If you have a net gain, the "recapture" cannot exceed the amount of your gain. In other words, the federal government is taking on all or much of the risk that the value of your new house won't increase over time.
At its core, the new tax credit functions very much like an interest-free loan for up to $7,500. You pay only the principal back over time.
Rob Dietz, an economist for the National Association of Home Builders, said the new credit not only will pull first-time buyers into the market, but also will have a powerful "multiplier effect" as thousands of sellers of these credit-assisted houses buy replacement homes for themselves, thus extending the impact of the credit into the move-up segment.
How do you claim the credit? If you pass the eligibility tests, simply request the credit on your tax return for either 2008 or 2009. Even if you buy in 2009, you can take the credit against your 2008 taxes by filing an amended return. The association has launched an educational Web site, www.federalhousingtaxcredit.com, with additional information for consumers.
By Kenneth R. HarneySaturday, August 2, 2008; Page F01
Anyone who has been hesitant about jumping into real estate until conditions settle down should keep in mind these dates: April 9, 2008, through June 30, 2009.
They mark the eligibility time span for the home-purchase tax credit created by the new housing bill. If you have not owned a house during the past three years and can go to closing before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).
The new credit is expected to benefit hundreds of thousands of buyers. The specifics of the credit changed in the past month as the Senate and House negotiated a final compromise, so here's a quick overview of the credit in its final form:
· The basic idea: To jump-start housing sales and clear out unsold real estate inventories, Congress is offering tax credits to pull in new buyers. Within the designated time period, buy any house -- new, old, any location or condition, any price range -- and the IRS will cut up to $7,500 off your tax bill for either this year or next. For example, if you're an eligible buyer this year and you owe the IRS $4,000 on your total 2008 income tax bill, your $7,500 tax credit could wipe out everything you owe plus get you a $3,500 refund. The new tax credit is what the government calls "refundable": If your tax bill is less than the credit amount, you get the difference back from the Treasury.
· Eligibility rules: Do you own a home? If so, you're not eligible for the credit. Did you sell your home more than three years ago and now rent? You are eligible. You're also eligible if you have never owned a home. Close on a house before June 30, and you can claim a credit of up to 10 percent of the purchase price of the property, up to $7,500. If your adjusted gross income exceeds $150,000 ($75,000 if you're single), the credit maximum begins to phase down. You cannot claim the credit if you are a nonresident alien, financed the property using a state or local housing agency's tax-exempt bond mortgage, or do not plan to use the house as your principal residence. Buyers who use the District's first-time-buyer credit program cannot double-dip and use the new federal credit, too.
Unlike some other tax credits, this one requires beneficiaries to repay the credit. Starting in the second tax year after purchase and continuing for up to 15 years, taxpayers are expected to make pro rata repayments to the government on their federal filings. Over a 15-year payback period for the full $7,500 credit, the cost would be $500 a year. If you sell the house before the end of the repayment period and you have no gain on the sale, you won't be expected to pay the credit back from the proceeds. If you have a net gain, the "recapture" cannot exceed the amount of your gain. In other words, the federal government is taking on all or much of the risk that the value of your new house won't increase over time.
At its core, the new tax credit functions very much like an interest-free loan for up to $7,500. You pay only the principal back over time.
Rob Dietz, an economist for the National Association of Home Builders, said the new credit not only will pull first-time buyers into the market, but also will have a powerful "multiplier effect" as thousands of sellers of these credit-assisted houses buy replacement homes for themselves, thus extending the impact of the credit into the move-up segment.
How do you claim the credit? If you pass the eligibility tests, simply request the credit on your tax return for either 2008 or 2009. Even if you buy in 2009, you can take the credit against your 2008 taxes by filing an amended return. The association has launched an educational Web site, www.federalhousingtaxcredit.com, with additional information for consumers.
Tuesday, July 29, 2008
More than 1.6 million U.S. businesses owe the Internal Revenue Service
from www.news.yahoo.com
Donna Smith Tue Jul 29, 11:59 AM ET
WASHINGTON (Reuters) - More than 1.6 million U.S. businesses owe the Internal Revenue Service more than $58 billion in unpaid taxes for Social Security, Medicare and unemployment insurance, a government watchdog agency said on Tuesday.
In a report to the Senate Homeland Security investigations subcommittee, the Government Accountability Office said the IRS fails to take full advantage of tools available to collect unpaid taxes and to prevent further cheating on payroll taxes.
"When businesses do not remit payroll taxes, they are using employees' money to fund business operations or the personal lifestyle of the businesses' owners," GAO Director of Financial Management and Assurance Steven Sebastian said in testimony to the committee.
This problem is a fraction of the estimated $300 billion or so in unpaid taxes each year that some members of Congress believe can be collected through tougher enforcement.
Payroll taxes are withheld from workers' wages by employers to fund the Social Security and Medicare retirement and health programs. Additional payroll taxes are collected to finance unemployment insurance. When the money is not passed on to the government, general revenues have to be tapped to make up for the loss to the programs' trust funds.
"Many of these businesses repeatedly failed to remit amounts withheld from employees' salaries," the GAO found.
Subcommittee Chairman Carl Levin, a Michigan Democrat, and Sen. Norm Coleman of Minnesota, the panel's top Republican, called on the IRS to beef up enforcement.
"IRS's pursuit of unpaid payroll taxes hasn't gotten the job done," Coleman said. "Rather than aggressively using the collection tools at their disposal, they seem content with hoping these tax deadbeats will come to their senses."
Deputy IRS Commissioner Linda Stiff told the committee that the agency collects 99.8 percent of payroll taxes owed, about $11 trillion over the last 10 years. The $58 billion in unpaid payroll tax debt as of September 2007, represents a 10-year total and $26 billion of that represents principal, with $32 billion in uncollected penalties and interest, she said.
Stiff said the IRS was refocusing efforts to use enforcement tools more effectively in payroll tax cases.
Payroll taxes represent a lion's share of the total revenues collected by the IRS. In 2007, the IRS collected $2.7 trillion in taxes. Of that, $1.7 trillion was payroll taxes, Stiff said.
Donna Smith Tue Jul 29, 11:59 AM ET
WASHINGTON (Reuters) - More than 1.6 million U.S. businesses owe the Internal Revenue Service more than $58 billion in unpaid taxes for Social Security, Medicare and unemployment insurance, a government watchdog agency said on Tuesday.
In a report to the Senate Homeland Security investigations subcommittee, the Government Accountability Office said the IRS fails to take full advantage of tools available to collect unpaid taxes and to prevent further cheating on payroll taxes.
"When businesses do not remit payroll taxes, they are using employees' money to fund business operations or the personal lifestyle of the businesses' owners," GAO Director of Financial Management and Assurance Steven Sebastian said in testimony to the committee.
This problem is a fraction of the estimated $300 billion or so in unpaid taxes each year that some members of Congress believe can be collected through tougher enforcement.
Payroll taxes are withheld from workers' wages by employers to fund the Social Security and Medicare retirement and health programs. Additional payroll taxes are collected to finance unemployment insurance. When the money is not passed on to the government, general revenues have to be tapped to make up for the loss to the programs' trust funds.
"Many of these businesses repeatedly failed to remit amounts withheld from employees' salaries," the GAO found.
Subcommittee Chairman Carl Levin, a Michigan Democrat, and Sen. Norm Coleman of Minnesota, the panel's top Republican, called on the IRS to beef up enforcement.
"IRS's pursuit of unpaid payroll taxes hasn't gotten the job done," Coleman said. "Rather than aggressively using the collection tools at their disposal, they seem content with hoping these tax deadbeats will come to their senses."
Deputy IRS Commissioner Linda Stiff told the committee that the agency collects 99.8 percent of payroll taxes owed, about $11 trillion over the last 10 years. The $58 billion in unpaid payroll tax debt as of September 2007, represents a 10-year total and $26 billion of that represents principal, with $32 billion in uncollected penalties and interest, she said.
Stiff said the IRS was refocusing efforts to use enforcement tools more effectively in payroll tax cases.
Payroll taxes represent a lion's share of the total revenues collected by the IRS. In 2007, the IRS collected $2.7 trillion in taxes. Of that, $1.7 trillion was payroll taxes, Stiff said.
Thursday, July 24, 2008
Disagree with the IRS? Appeal its decision
from www.bankrate.com
By Kay Bell • Bankrate.com
There are as many tax issues as there are taxpayers. Everyone's situation is unique.
But taxpayers who find themselves disagreeing with the Internal Revenue Service share a common bond. Each has the right to appeal the agency's findings.
The IRS appeals system is used most commonly by people questioning the results of a tax-return examination and subsequent tax bill adjustments. But audits aren't the only thing taxpayers can appeal. You also have the right to question:
IRS collection actions, such as liens, levies, seizures and installment-agreement terminations.
Rejected offers in compromise to settle tax bills.
Penalties and interest the IRS adds to your tax bill.
In some cases, an appeal of a tax decision can begin -- and be settled -- immediately. If examination of your return is at an IRS office, you can request an on-the-spot meeting with the examiner's supervisor to explain your position. If an agreement is reached, your case will be closed.
If that fails or the examination took place outside of an IRS office, the tax examiner will write up the case explaining your and the IRS' positions and send the report to the district office for processing. Within a few weeks, you should receive the IRS findings on your case. If you don't agree with this, your next step is to go to an IRS Appeals Office.
A local Appeals Office is a separate and independent IRS office. Its tax-dispute conferences are informal, and can be conducted by correspondence, telephone or in person.
Before taking your case to Appeals, consider:
•
Whether you need help in determining that the IRS made an incorrect decision due to misinterpreting the law. Check IRS and other tax publications discussing your issue or issues.
•
Whether the IRS did not properly apply the law due to a misunderstanding of the facts. Be prepared to clarify and support your position.
•
Whether the IRS is taking an inappropriate collection action against you or you do not agree with its denial of your offer in compromise.
Always refer to specific IRS decisions, usually cited on the examination notice. In each case where you believe the facts used by the IRS are incorrect, make sure you have records or other support available back up your position.
You don't have to have legal representation at an Appeals Office meeting, but if you wish you can be joined by an attorney, certified public accountant or an Enrolled Agent. If you prefer to go it alone, you can get more information from the IRS Web page dedicated to appeals issues.
Most tax differences are settled at the Appeals Office level. But in the instances where taxpayers still are unhappy, they can take their cases to the independent Taxpayer Advocate for help.
Finally, taxpayers who've exhausted all other tax-dispute avenues have the right to head to federal court.
Further information on taxpayer appeals is available in IRS Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don't Agree; Publication 556, Examination of Returns, Appeal Rights and Claims for Refunds; and Publication 1660, Collection Appeal Rights (for Liens, Levies and Seizures).
Keep in mind that during all levels of appeals you must have valid legal reasons based on current tax law for disagreeing with the IRS. You cannot appeal your case based only on moral, religious, political, constitutional or conscientious grounds.
Freelance writer Kay Bell writes Bankrate's tax stories from her Austin, Texas, home. She also writes two tax blogs, Bankrate's Eye on the IRS, and Don't Mess With Taxes.
--
By Kay Bell • Bankrate.com
There are as many tax issues as there are taxpayers. Everyone's situation is unique.
But taxpayers who find themselves disagreeing with the Internal Revenue Service share a common bond. Each has the right to appeal the agency's findings.
The IRS appeals system is used most commonly by people questioning the results of a tax-return examination and subsequent tax bill adjustments. But audits aren't the only thing taxpayers can appeal. You also have the right to question:
IRS collection actions, such as liens, levies, seizures and installment-agreement terminations.
Rejected offers in compromise to settle tax bills.
Penalties and interest the IRS adds to your tax bill.
In some cases, an appeal of a tax decision can begin -- and be settled -- immediately. If examination of your return is at an IRS office, you can request an on-the-spot meeting with the examiner's supervisor to explain your position. If an agreement is reached, your case will be closed.
If that fails or the examination took place outside of an IRS office, the tax examiner will write up the case explaining your and the IRS' positions and send the report to the district office for processing. Within a few weeks, you should receive the IRS findings on your case. If you don't agree with this, your next step is to go to an IRS Appeals Office.
A local Appeals Office is a separate and independent IRS office. Its tax-dispute conferences are informal, and can be conducted by correspondence, telephone or in person.
Before taking your case to Appeals, consider:
•
Whether you need help in determining that the IRS made an incorrect decision due to misinterpreting the law. Check IRS and other tax publications discussing your issue or issues.
•
Whether the IRS did not properly apply the law due to a misunderstanding of the facts. Be prepared to clarify and support your position.
•
Whether the IRS is taking an inappropriate collection action against you or you do not agree with its denial of your offer in compromise.
Always refer to specific IRS decisions, usually cited on the examination notice. In each case where you believe the facts used by the IRS are incorrect, make sure you have records or other support available back up your position.
You don't have to have legal representation at an Appeals Office meeting, but if you wish you can be joined by an attorney, certified public accountant or an Enrolled Agent. If you prefer to go it alone, you can get more information from the IRS Web page dedicated to appeals issues.
Most tax differences are settled at the Appeals Office level. But in the instances where taxpayers still are unhappy, they can take their cases to the independent Taxpayer Advocate for help.
Finally, taxpayers who've exhausted all other tax-dispute avenues have the right to head to federal court.
Further information on taxpayer appeals is available in IRS Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don't Agree; Publication 556, Examination of Returns, Appeal Rights and Claims for Refunds; and Publication 1660, Collection Appeal Rights (for Liens, Levies and Seizures).
Keep in mind that during all levels of appeals you must have valid legal reasons based on current tax law for disagreeing with the IRS. You cannot appeal your case based only on moral, religious, political, constitutional or conscientious grounds.
Freelance writer Kay Bell writes Bankrate's tax stories from her Austin, Texas, home. She also writes two tax blogs, Bankrate's Eye on the IRS, and Don't Mess With Taxes.
--
McCain and Obama tax plans are criticized
from www.latimes.com
McCain and Obama tax plans are criticized
The nonpartisan Tax Policy Center says that both candidates' proposals would increase the national debt by trillions and may make the system more complex.
By Stephen Braun, Los Angeles Times Staff Writer July 24, 2008
WASHINGTON -- The competing tax plans laid out by Sens. Barack Obama and John McCain would both add trillions of dollars to the national debt and could add to the tax system's complexity, a nonpartisan tax research group concluded Wednesday in a newly released report.Both campaigns assert that their plans to continue many Bush-era tax cuts and offer new reductions would aid the economy without massive new spending. But the Washington-based Tax Policy Center warned that under either candidate, "the debt would likely continue to rise as it has over the past eight years."Obama's plan -- cuts targeted to middle- and low-income Americans and increases for the wealthy -- would increase the national debt by an estimated $3.4 trillion in the next decade, the center said. Under a similar analysis, McCain's plan -- largely a continuation of Bush's tax reductions -- would add $5 trillion. The deficit is now $9.5 trillion.Both candidates would maintain the Bush tax cuts for the working poor and middle-income taxpayers. But they differ drastically on how to target the richest Americans. The report estimated that under McCain's plan, Americans who make between $38,000 and $66,000 a year would see average tax cuts of as much as $1,400 in 2012. But the Arizona Republican would aid the wealthiest 1% -- those who make more than $603,000 per year -- with annual tax reductions averaging $127,000.Under Obama's plan, the tax center said, middle-income taxpayers would have tax cuts averaging $2,100 in 2012. But the top 1% of taxpayers would see steep increases -- $38,000 a year, on average -- under the Illinois Democrat's plan.Leonard E. Burman, a Tax Policy Center senior fellow who was on the team that reviewed the candidates' plans, said in an interview that important portions of both plans had yet to be fleshed out.Both proposals are filled with "soft numbers" and sometimes play "fast and loose with their figures," Burman added."We had to make a lot of assumptions because there are big parts of their proposals that are still being fine-tuned," he said.Burman also said that although both candidates' plans attempt to streamline the tax system, they create potential new complexities. Both Obama and McCain would continue the alternative minimum tax, or AMT, long criticized for adding to the tax bite and complexity for middle-class and many upper-middle-class taxpayers.McCain would allow taxpayers to circumvent the AMT with an "optional alternative tax system" that could cause new chaos."If the new alternative tax system does not offer significant tax cuts, having to figure taxes under two systems and estimate which one would be better would add complexity, not reduce it," the center cautions.And although Obama seeks to aid low-income taxpayers by having the government prepare tax returns that the taxpayers would then approve, he has only committed vaguely to "fiscally responsible" reform of the AMT, the center notes.Another concern, Burman noted, is that Obama and McCain have presented "somewhat differing" versions of their plans on the campaign trail than what they have issued on the Web and in position papers."Sen. McCain's proposals on the stump are often far more sweeping than the more measured options outlined by his campaign," the center said. At the same time, "Sen. Obama also often proposes new taxes on high-income households to extend Social Security solvency, but his staff insists that no specific policy exists."stephen.braun@latimes.com
McCain and Obama tax plans are criticized
The nonpartisan Tax Policy Center says that both candidates' proposals would increase the national debt by trillions and may make the system more complex.
By Stephen Braun, Los Angeles Times Staff Writer July 24, 2008
WASHINGTON -- The competing tax plans laid out by Sens. Barack Obama and John McCain would both add trillions of dollars to the national debt and could add to the tax system's complexity, a nonpartisan tax research group concluded Wednesday in a newly released report.Both campaigns assert that their plans to continue many Bush-era tax cuts and offer new reductions would aid the economy without massive new spending. But the Washington-based Tax Policy Center warned that under either candidate, "the debt would likely continue to rise as it has over the past eight years."Obama's plan -- cuts targeted to middle- and low-income Americans and increases for the wealthy -- would increase the national debt by an estimated $3.4 trillion in the next decade, the center said. Under a similar analysis, McCain's plan -- largely a continuation of Bush's tax reductions -- would add $5 trillion. The deficit is now $9.5 trillion.Both candidates would maintain the Bush tax cuts for the working poor and middle-income taxpayers. But they differ drastically on how to target the richest Americans. The report estimated that under McCain's plan, Americans who make between $38,000 and $66,000 a year would see average tax cuts of as much as $1,400 in 2012. But the Arizona Republican would aid the wealthiest 1% -- those who make more than $603,000 per year -- with annual tax reductions averaging $127,000.Under Obama's plan, the tax center said, middle-income taxpayers would have tax cuts averaging $2,100 in 2012. But the top 1% of taxpayers would see steep increases -- $38,000 a year, on average -- under the Illinois Democrat's plan.Leonard E. Burman, a Tax Policy Center senior fellow who was on the team that reviewed the candidates' plans, said in an interview that important portions of both plans had yet to be fleshed out.Both proposals are filled with "soft numbers" and sometimes play "fast and loose with their figures," Burman added."We had to make a lot of assumptions because there are big parts of their proposals that are still being fine-tuned," he said.Burman also said that although both candidates' plans attempt to streamline the tax system, they create potential new complexities. Both Obama and McCain would continue the alternative minimum tax, or AMT, long criticized for adding to the tax bite and complexity for middle-class and many upper-middle-class taxpayers.McCain would allow taxpayers to circumvent the AMT with an "optional alternative tax system" that could cause new chaos."If the new alternative tax system does not offer significant tax cuts, having to figure taxes under two systems and estimate which one would be better would add complexity, not reduce it," the center cautions.And although Obama seeks to aid low-income taxpayers by having the government prepare tax returns that the taxpayers would then approve, he has only committed vaguely to "fiscally responsible" reform of the AMT, the center notes.Another concern, Burman noted, is that Obama and McCain have presented "somewhat differing" versions of their plans on the campaign trail than what they have issued on the Web and in position papers."Sen. McCain's proposals on the stump are often far more sweeping than the more measured options outlined by his campaign," the center said. At the same time, "Sen. Obama also often proposes new taxes on high-income households to extend Social Security solvency, but his staff insists that no specific policy exists."stephen.braun@latimes.com
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