Obama’s Income Tax Cliff for Senior Citizens

page: 3
1
<< 1  2   >>

log in

join

posted on Oct, 22 2008 @ 01:21 PM
link   
From TPC's Report


Exempting seniors earning less than $50,000 from income taxation. Senator Obama would exempt seniors earning less than $50,000 from income taxation. A tax unit would pay no income tax if the primary taxpayer (and the spouse for married couples) is age 65 or older and the tax unit’s adjusted gross income, untaxed Social Security benefits, and tax-exempt interest totals less than $50,000. Tax units entitled to a net refund from the government would remain entitled to that refund. The threshold would be the same for both single and married households and would not be indexed for inflation (so its value would erode over time). The eligibility threshold for seniors is a strict threshold—there is no income phaseout.



The proposal to exempt seniors earning under $50,000 from income tax is poorly designed according to its current description and creates inequity between older and younger taxpayers with the same income. As we understand it, the proposal contains a “cliff”: filers with income just below $50,000 would owe no income tax, but those with income just above that level could owe substantial tax. This would create substantial disincentives for seniors near the income threshold to work or otherwise earn income. Phasing out the benefit over a range of income would correct this flaw but would extend the benefit of the exemption to taxpayers at higher income levels and thus raise the revenue costs (assuming no behavioral response to the “cliff”). And phasing out the benefit only reduces work disincentives since the phaseout itself increases effective marginal tax rates on affected taxpayers and could therefore reduce their willingness to earn more income.



The proposal also raises concerns about fairness. Under current law, most senior citizens pay no income tax because only a portion of Social Security benefits are subject to tax, and only for taxpayers with incomes above a threshold. In addition, senior citizens may claim an additional standard deduction. Nobody age 65 and over whose income comes entirely or almost entirely from Social Security is subject to income tax. The proposal would exempt comparatively well off, though not affluent, senior citizens from tax and give them a benefit not generally available to working Americans. Given the large pending increases in public spending on senior citizens due to the forthcoming retirement of the baby boomers, it seems inappropriate to target special income tax breaks to this group. Furthermore, the proposal helps only those low-income seniors who currently pay income taxes; those too poor to owe any tax—arguably those most in need—would get no benefit.



Even though Senator Obama’s plan eliminates individual income taxes for seniors with incomes less than $50,000, his plan would raise taxes for almost 10 million senior households, over a third of the total (not shown in table). On average, seniors would face a tax increase of about 2 percent of income. The impact varies by quintile, however: seniors in the bottom two quintiles of the income distribution would see an average tax cut of almost 1.0 percent of income, while those in the top quintile would experience an average tax increase equal to 3.8 percent of income. Taxes would increase by an average 9.2 percent of income for the 390,000 seniors in the top 1 percent.



Retirees would generally benefit from few of Obama’s new tax credit proposals such as the Making Work Pay credit and the American Opportunity tax credit for education or from his expansions to the EITC or the child and dependent care credit. Instead, increases in the tax rates on capital gains and dividends would hurt the typical older taxpayer more than the typical younger taxpayer, who receives more of his or her income from earnings. For the same reason, higher-income seniors would on average see a larger drop in after-tax income from Obama’s corporate tax increases than younger taxpayers.


After reading though - admittedly not in depth, it seems to me that Obama's plan benefits those who are currently eligible to receive Earned Income Tax Credit more than anyone else?

Am I misunderstanding that?




posted on Oct, 22 2008 @ 07:48 PM
link   
reply to post by redhatty
 





After reading though - admittedly not in depth, it seems to me that Obama's plan benefits those who are currently eligible to receive Earned Income Tax Credit more than anyone else?

That is certainly the way I see it. As a senior, I see absolutely no benefit from his plan at all, including this under $50,000. because although I am under 50K, my wife and I are also under age 65, but retired. (My wife never had a paying job, but she had a full time job taking care of our children.) A tax credit or deduction for our outrageous medical insurance would have been nice, and although McCain is offering a $5,000 credit, it looks like he won't get elected anyway.

BTW, the Obama campaign has been slamming McCain on his taxing of medical benefits, but they are not correctly reporting the $5,000 tax credit.
Let me explain it so people understand, not that it seems to matter to anyone.
Let's say that your employer contributes $7,000 a year towards the employee health plan, a typical amount contributed by an good employer. The taxpayer would be taxed on the $7,000. Let's assume that the employee is in the 15% bracket. He/she would pay $750 of tax (15% of $5,000). However, the employee would then get $5,000 in a refundable tax credit under McCain. Thus, the employee would net an extra $4,250.00 that he/she never had.



posted on Feb, 24 2009 @ 06:29 PM
link   
reply to post by ProfEmeritus
 

I checked with the IRS and if you make more than $25,000 a year you must claim %50 of your social security. If social security did not have to been claimed as an income most retirees would not have any taxable income from their retirements.





new topics
 
1
<< 1  2   >>

log in

join