Barack Obama on Tax Reform
Democratic incumbent President; IL Senator (2004-2008)
I'll also offer ideas to reform a corporate tax code that stands as a monument to special interest influence in Washington. By eliminating pages of loopholes and deductions, we can lower one of the highest corporate tax rates in the world. Our tax code shouldn't give an advantage to companies that can afford the best-connected lobbyists. It should give an advantage to companies that invest and create jobs here in America.
As a result, millions of Americans had more to spend on gas and food and other necessities, all of which helped businesses keep more workers. And we haven't raised income taxes by a single dime on a single person. Not a single dime.
Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. And we're on track to add another one and a half million jobs to this total by the end of the year.
The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act, also known as the stimulus bill. Economists on the left and the right say this bill has helped save jobs and avert disaster.
He's referring to the "making work pay" refundable tax credit, which is only available to workers. There would be no credit for retirees or those who are unemployed; a more modest 75.5% of all households would benefit, whether their members are working or not.
It is also questionable whether all of the tax refunds can properly be called "tax cuts." The credit is refundable and, therefore, is going to many who earn so little that they pay no federal income taxes in the first place. The White House calls them tax cuts, but the nonpartisan Congressional Budget Office officially scores the bill's refundable credits under "direct spending."
OBAMA: McCain is absolutely right that the earmarks process has been abused, which is why I suspended any requests for my home state, whether it was for senior centers or what have you, until we cleaned it up. He’s also right that oftentimes lobbyists and special interests are the ones that are introducing these kinds of requests, although that wasn’t the case with me. Let’s be clear: earmarks account for $18 billion in last year’s budget. McCain is proposing $300 billion in tax cuts to some of the wealthiest corporations & individuals in the country. Now $18 billion is important; but $300 billion is really important. In his tax plan, you woul have CEOs of Fortune 500 companies getting an average of $700,000 in reduced taxes, while leaving 100 million Americans out. So my attitude is we’ve got to grow the economy from the bottom up. What I’ve called for is a tax cut for 95% of working families
Obama's own proposals to date have sometimes mocked his bold rhetoric. On July 7 Obama delivered a speech titled, "An Agenda for Middle Class Success." He began by describing the Republican philosophy: "Give massive tax breaks to big corporations and multimillionaires and hope that prosperity trickles down to everyone else. Sacrifice investments in health care and education and energy and technology to pay for these tax breaks, and borrow the rest from countries like China, leaving our children to foot the bill." And he added, "Well, it's painfully clear by now how badly this strategy has failed."
The problem is that the capital gains rate has dropped since the days of Ronald Reagan. Stated less rhetorically and more straightforwardly, Obama was proposing to RAISE the long-term capital gains tax from 15 percent to 28 percent, nearly doubling it.
Source: Obama Nation, by Jerome Corsi, p.244 , Aug 1, 2008
Obama has realized that it is impossible if a society bases all privilege and opportunity primarily on the wealth of one's parents. What Obama finds most disturbing about the inheritance tax debate is that the most important implication of allowing large inheritances is that it will indeed create a society based on inherited wealth privilege and opportunity. He believes that we will again become what we broke away from, an indentured people to a privileged class.
These steps are all paid for, and designed to restore balance and fairness to the American economy after years of Bush Administration policies that tilted the playing field in favor of the wealthy and the well-connected.
A: Well, I’m going to go right back at McCain, because look at his tax proposals. He not only wants to continue some of the Bush tax cuts for the wealthiest Americans and corporations, he actually wants to extend them, and he hasn’t told us really how he’s going to pay for them. It is irresponsible. And the irony is he said it was irresponsible. When George Bush initiated these tax cuts in 2001, McCain said, “This is shameful.“ He said that it offended his conscience, he said, for us to give tax breaks to the wealthy, particularly at a time of war. If you look at my approach to taxation, what have I said? I said I would cut taxes for people making $75,000 a year or less. I’d cut taxes for seniors who are making $50,000 a year or less. It is true that I would roll back the Bush tax cuts on the wealthiest Americans back to the level they were under Bill Clinton, when I don’t remember rich people feeling oppressed.
A: It is absolutely critical right now to give a stimulus to the economy. We’ve got to get tax cuts into the pockets of hard-working Americans right away. And it is important for us to make sure that they are not just going to the wealthy. They should be going to folks who are making $75,000 a year or less, and they should be going to folks who only pay payroll tax, but typically are not paying income tax.
Q: Do you agree with Sen. Clinton that $650 is a good number for a tax rebate?
A: Well, I think that we are going to have to get some immediate money. What I say is, $500 for a tax rebate per typical family. But also, for senior citizens, a supplement to their Social Security check, because they get that every month. That would provide seniors all across the country right away some money to help pay for their heating bills and other expenses that they’ve got right now.
A: Are there people who abuse the system? Yes, both at the bottom and at the top--because there are a whole bunch of millionaires who aren't paying taxes at all either. But when you look statistically, it turns out that even if people aren't paying income taxes, they're paying payroll taxes. They're paying gas taxes. They're paying sales taxes. They're paying state & local taxes. So the fact of the matter is that the few people who are not paying income taxes are either paying a lot of taxes because they're working every day but they just don't make enough money overall to pay income tax; or alternatively, they're senior citizens or they're students or they're disabled; or, in some cases, they're veterans or soldiers who are fighting for us right now overseas--they don't pay an income tax. Americans work hard, and if they're not working right now, they want to get to work. And that's what my economic plan is designed to do.
They want your vote, but they don't want you to know their plan. And that's because all they had to offer is the same prescription they've had for the last 30 years:
"Have a surplus? Try a tax cut."
"Deficit too high? Try another."
"Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning."
Now, I've cut taxes for those who need it, middle-class families, small businesses. But I don't believe that another round of tax breaks for millionaires will bring good jobs to our shores, or pay down our deficit. I don't believe that rolling back regulations on Wall Street will help the small businesswoman expand, or the laid-off construction worker keep his home. We have been there, we've tried that, and we're not going back. We are moving forward.
Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else? Because if we're serious about paying down our debt, we can't do both.
Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30% in taxes, and you shouldn't get special tax subsidies or deductions. On the other hand, if you make under $250,000 a year, like 98% of American families, your taxes shouldn't go up.
Pres. OBAMA: I'm going to take a look at what you guys are proposing. What you may consider across-the-board tax cuts could be, for example, greater tax cuts for people who are makin a billion dollars. I may not agree to a tax cut for Warren Buffett. You may be calling for an across-the-board tax cut for the banking industry right now. I may not agree to that. If you're calling for just across-the-board tax cuts, and then on the other hand saying that we're somehow going to balance our budget, I'm going to want to take a look at your math and see how that works, because the issue of deficit and debt is another area where there has been a tendency for some inconsistent statements.
From some on the right, I expect we'll hear a different argument--that if we just make fewer investments in our people, extend tax cuts including those for the wealthier Americans, eliminate more regulations, maintain the status quo on health care, our deficits will go away. The problem is that's what we did for eight years.
That's what helped us into this crisis. It's what helped lead to these deficits. We can't do it again.
A: There is no doubt that it’s going to affect our budgets. There is no doubt about it. Even if we get all $700 billion back, let’s assume the markets recover; we’re holding assets long enough that eventually taxpayers get it back. In the short term, there’s an outlay. We may not see that money for a while. Because the economy is slowing down, we can also expect less tax revenue. So there’s no doubt that as president, I’m going to have to make some tough decisions. We’ve got to know what our values are and who we’re fighting for and what our priorities are. If we are spending $300 billion on tax cuts for people who don’t need them and weren’t even asking for them and we are leaving out health care, which is crushing on people all across the country, then we have made a bad decision, and I want to make sure we’re not shortchanging our long-term priorities.
A: I will raise CEO taxes. There is no doubt about it.
Q: What about the average American?
A: If you are a CEO in this country, you will probably pay more taxes. They won’t be prohibitively high. You’re going to be paying roughly what you paid in the ‘90s, when CEOs were doing just fine.
Q: So, you want to just eliminate the Bush tax cuts?
A: I want to eliminate the Bush tax cuts. And what I have said is, I will institute a middle-class tax cut. So, if you’re making $75,000, if you’re making $50,000 a year, you will see an extra $1,000 a year offsetting on your payroll tax.
Q: Define middle class.
A: Well, look, I think that the definitions are always a little bit rough, but if you’re making $100,000 a year or less, then you’re pretty solidly middle class, and you deserve relief right now, as opposed to paying higher taxes. But people who are making over $200,000 or $250,000 have benefited the most from economic growth.
CLINTON: I will let the taxes on people making more than $250,000 a year go back to the rates that they were paying in the 1990s.
Q: Senator Obama, would you take the same pledge? No tax increases on people under $250,000?
OBAMA: I not only have pledged not to raise their taxes, I’ve been the first candidate in this race to specifically say I would cut their taxes. We are going to offset the payroll tax, the most regressive of our taxes, so that families who are middle-income individuals making $75,000 a year or less, that they would get a tax break so that families would see up to $1,000 worth of relief.
Q: You both have now just taken this pledge on people under $250,000 and $200,000.
OBAMA: Well, it depends on how you calculate it. But it would be between $200,000 and $250,000.
A: What I’ve said is that I would look at raising the capital gains tax for purposes of fairness. The top 50 hedge fund managers made $29 billion last year--$29 billion for 50 individuals. Those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.
Q: But history shows that when you drop the capital gains tax, the revenues go up.
A: Well, that might happen or it might not. It depends on what’s happening on Wall Street and how business is going.
OBAMA: On wealthy Americans.
CLINTON: That’s right.
OBAMA: I’m not bashful about it.
OBAMA: I suspect a lot of this crowd--it looks like a pretty well-dressed crowd--potentially will pay a little bit more. I will pay a little bit more. But that investment will pay huge dividends over the long term, and the place where it will pay the biggest dividends is in Medicare and Medicaid. Because if we can get a healthier population, that is the only way over the long term that we can actually control that spending that is going to break the federal budget.
CLINTON: It’s just really important to underscore here that we will go back to the tax rates we had before George Bush became president. And my memory is, people did really well during that time period. And they will keep doing really well.
A: There’s no doubt that the tax system has been skewed. And the Bush tax cuts--people didn’t need them, and they weren’t even asking for them, and that’s why they need to be less, so that we can pay for universal health care and other initiatives.
But I think this goes to a broader question, and that is, are we willing to make the investments in genuine equal opportunity in this country? People aren’t looking for charity. We talk about welfare and we talk about poverty, but what people really want is fairness. They want people paying their fair share of taxes. They want that money allocated fairly.
One of the distressing things about Katrina was the fact that we have not made systematic investments. And the only way we’re going to make it is by making sure that those of us who are fortunate enough to have the money actually make a contribution.
Nowhere has this confusion been more evident than in the debate surrounding the proposed repeal of the estate tax. As currently structured, a husband and wife can pass on $4 million without paying any estate tax. In 2009, this figure goes up to $7 million. The tax thus affects only the wealthiest one-third of 1% in 2009. Repealing the estate tax would cost $1 trillion, and it would be hard to find a tax cut that was less responsive to the needs of ordinary Americans or the long-term interests of the country.
It wouldn’t be fair or accurate to blame all of this on the Bush Administration. It is fair, however, to say that they haven’t done much to help. The tax cuts they’ve offered have barely made a dent in reducing the burden on middle class families, while driving our nation trillions of dollars deeper into debt. They continue to support tax breaks for corporations who export jobs overseas, and have refused to enforce provisions within existing trade agreements against countries who engage in unfair trade practices.
Yes, as we’ve said before, Obama did in fact vote for a budget resolution that called for highe federal income tax rates on a single, non-homeowner who earned as little as $42,000 per year. A couple filing jointly, however, would have had to earn at least $83,000 per year to be affected. A family of four with income up to $90,000 would not have been affected.
The resolution actually would not have altered taxes without additional legislation. It called generally for allowing most of the 2001 and 2003 Bush tax cuts to expire. McCain is referring to the provision that would have allowed the 25% tax bracket to return to 28%. The tax plan Obama now proposes, however, would not raise the rate on that tax bracket.
SUPPORTER'S ARGUMENT FOR VOTING YES:Sen. SANDERS: The wealthiest people in the country have not had it so good since the 1920s. Their incomes are soaring, while at the same time the middle class is shrinking, and we have by far the highest rate of childhood poverty of any major country. The time is now to begin changing our national priorities and moving this country in a different direction.
This amendment restores the top income tax bracket for households earning more than $1 million a year, it raises $32.5 billion over 3 years, and invests that in our kids, including $10 billion for special education. OPPONENT'S ARGUMENT FOR VOTING NO:Sen. KYL: The problem is we are spending the same dollar 3 or 4 times, it appears. The Sanders amendment is paid for by raising taxes another $32.5 billion, ostensibly from the rich; that is to say, by raising taxes on people who make over $1 million a year. Here is the problem with that. The budget on the floor already assumes the expiration of the current tax rates; that is to say, the rates on the highest level go from 35% to 39.6%, and that money is spent. If you took all the top-rate income, you would come up with $25 billion a year, not even enough to meet what is here, and that money has already been spent. The reality is somewhere or other, somehow, more taxes would have to be raised. I don't think the American people want to do that, particularly in the current environment. LEGISLATIVE OUTCOME:Amendment rejected, 43-55
SUPPORTER'S ARGUMENT FOR VOTING YES:Sen. GRASSLEY: The Senate voted to make sure that middle-class America didn't pay the AMT, and we did it without an offset, by a vote of [about 95%]. So here we are again with an opportunity to say to middle-class America that we are not going to tax the people who were not supposed to be hit by the AMT. This amendment gives us an opportunity to get over that hurdle that is in this budget resolution that, under pay-go, you would have to have an offset for the AMT. Unless my amendment is adopted, the 25 million families who will be hit by the AMT increase will get a tax increase of over $2,000 apiece. They deserve a guarantee of relief.OPPONENT'S ARGUMENT FOR VOTING NO: Sen. CONRAD: If you want to blow a hole in the budget as big as all outdoors, here is your opportunity--a trillion dollars not paid for, a trillion dollars that we are going to go out and borrow from the Chinese and Japanese. That makes absolutely no sense. I urge my colleagues to vote no.LEGISLATIVE OUTCOME:Amendment rejected, 47-51
SUPPORTER'S ARGUMENT FOR VOTING YES:Sen. KYL: This amendment is a reprise of what we did last year in offering to reform the estate tax, sometimes referred to as the death tax. Now, in the budget itself, there is a provision to allow the death tax to be changed from the current law to a top rate of 45% and an exempted amount of $3.5 million, and there are some other features. My amendment would reduce that top rate to no higher than 35% so that if you had more than one rate, at least the top rate could not exceed 35%, and both of the two spouses would have a $5 million exempted amount before the estate tax would kick in. Now, the reason for my amendment is: current law [is] getting up to a high rate of 55% and an exempted amount of either $2 million or $1 million, probably $1 million--a continued unfair burden on primarily America's small businesses and farms.
OPPONENT'S ARGUMENT FOR VOTING NO:Sen. CONRAD: This amendment would virtually eliminate the estate tax. Let me say why. Let me first say there is no death tax in the country. Of course, if you poll people and you ask them: Do you want to eliminate the death tax? they will say sure. But you are not going to pay any tax when you die unless you have $2 million. There is no death tax in America. There is a tax on estates. At today's level of $2 million, that affects only 0.5% of estates. When the exemption reaches $3.5 million in 2009, 0.2% of estates will be taxed. If the amendment is agreed to, we would be borrowing money in the name of 99.8% of the American people, borrowing primarily from China & Japan, to give it to the Warren Buffets, the Paris Hiltons, & others of enormous wealth in this country.
LEGISLATIVE OUTCOME:Amendment rejected, 50-50
Proponents recommend voting YES because:
This amendment repeals the AMT. Except for the telephone tax, the alternative minimum tax is the phoniest tax we have ever passed. The AMT, in 1969, was meant to hit 155 taxpayers who used legal means to avoid taxation, under the theory that everybody ought to pay some income tax.
This very year, more than 2,000 people who are very wealthy are not paying any income tax or alternative minimum income tax. So it is not even working and hitting the people it is supposed to hit. Right now, this year, 2007, the year we are in, there are 23 million families that are going to be hit by this tax. It is a phony revenue machine, over 5 years, $467 billion dollars. We are going to have to have a point of order this year to keep these 23 million taxpayers from paying this tax. We might as well do away with it right now, once and for all, and be honest about it.
Opponents recommend voting NO because:
The reality of the budget resolution is this may not have anything to do with eliminating the alternative minimum tax. The one thing it will do is reduce the revenue of the Government over the next 5 years by $533 billion, plunging us right back into deficit. Look, we can deal with the AMT. We have dealt with it in the underlying budget resolution for the next 2 years. There will be no increase in the number of people affected by the AMT for the next 2 years under the budget resolution, and that is paid for. Unfortunately, this amendment is not paid for. It would plunge us back into deficit. I urge my colleagues to vote no.
Proponents recommend voting YES because:
It is disappointing to many family businesses and farm owners to set the death tax rate at what I believe is a confiscatory 45% and set the exemption at only $3.5 million, which most of us believe is too low. This leaves more than 22,000 families subject to the estate tax each year.
Opponents recommend voting NO because:
You can extend all the tax breaks that have been described in this amendment if you pay for them. The problem with the amendment is that over $70 billion is not paid for. It goes on the deficit, which will drive the budget right out of balance. We will be going right back into the deficit ditch. Let us resist this amendment. People could support it if it was paid for, but it is not. However well intended the amendment is, it spends $72.5 billion with no offset. This amendment blows the budget. This amendment takes us from a balance in 2012 right back into deficit. My colleagues can extend those tax cuts if they pay for them, if they offset them. This amendment does not pay for them; it does not offset them; it takes us back into deficit. It ought to be defeated.
Proponents recommend voting YES because:
The permanent solution to the death tax challenge that we have today is a compromise. It is a compromise that prevents the death rate from escalating to 55% and the exclusion dropping to $1 million in 2011. It also includes a minimum wage increase, 40% over the next 3 years. Voting YES is a vote for that permanent death tax relief. Voting YES is for that extension of tax relief. Voting YES is for that 40% minimum wage increase. This gives us the opportunity to address an issue that will affect the typical American family, farmers, & small business owners.
Opponents recommend voting NO because:
Family businesses and family farms should not be broken up to pay taxes. With the booming economy of the 1990s, many more Americans joined the ranks of those who could face estate taxes. Raising the exemption level and lowering the rate in past legislation made sense. Under current law, in my State of Delaware, fewer than 50 families will face any estate tax in 2009. I oppose this legislation's complete repeal of the estate tax because it will cost us $750 billion. Given the world we live in today, with clear domestic needs unmet, full repeal is a luxury that we cannot afford.
To add insult to this injury, the first pay raise for minimum wage workers in 10 years is now hostage to this estate tax cut. We are told that to get those folks on minimum wage a raise, we have to go into debt, so that the sons and daughters of the 7,000 most fortunate families among us will be spared the estate tax. We must say no to this transparent gimmick.
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Citizens for Tax Justice, founded in 1979, is not-for-profit public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation. CTJ's mission is to give ordinary people a greater voice in the development of tax laws. Against the armies of special interest lobbyists for corporations and the wealthy, CTJ fights for:
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