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Obama/Republican Tax Compromise Better for Low-Income Americans

Democrats' Plan Would Tax More of the Poor Washington, DC, December 13, 2010-The current compromise tax proposal agreed to by President Obama and Republicans in Congress would be more generous to low-income workers than the competing proposal favored by Democrats in the House of Representatives, according to a new report by the Tax Foundation.

Less affluent taxpayers would benefit in large part from the proposed one-year cut in the payroll tax, a key element of the White House compromise plan, but one that is lacking in the Democrat-supported tax bill passed earlier this year in the House. The impacts of both plans, as well as other possible legislative scenarios, are examined in the new publication Tax Foundation Fiscal Fact No. 254, "Obama's Tax Compromise and its Effects on Low-Income Taxpayers," by analyst Nick Kasprak.

Using a hypothetical family of four with two children and $40,000 in income, Kasprak calculates the financial impact of allowing the Bush tax cuts to completely expire, extending them fully with no other changes, the original Republican plan, the House Democratic plan and the White House compromise plan. The report concludes that the compromise plan constitutes the best deal for lower-income taxpayers.

"The compromise between Senate Republicans and the President produces a much lower tax bill (or a higher tax refund) for low-income workers," said Kasprak, analyst at the Tax Foundation. "Despite not being quite as generous as current 2010 tax law in very low-income cases, below $40,000 for married filers and $20,000 for single filers, it remains a better deal than the GOP or the Democratic bills proposed in Congress."

In addition to the newly released Fiscal Fact, Kasprak has also updated the Tax Foundation's 2011 Tax Calculator to take into account the major provisions of the Obama compromise package. Taxpayers can calculate their own liability under the competing scenarios and compare their potential tax bills for next year.

For more information on the Obama tax compromise proposal, see "Initial Observations on Pending Tax Cut Deal" by Tax Foundation President Scott A. Hodge.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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