Business Leery Of Obama’s Tax Plans

From MSNBC.com:

The nation’s most successful small business owners could pay higher taxes under President Obama’s budget plan.

The income of most small businesses is taxed at the individual level. The budget plan calls for increasing the top two tax rates to 36 percent and 39.6 percent in 2011, up from the current rates of 33 percent and 35 percent.

These higher-income taxpayers also would not receive the full value of their itemized deductions, and they would see their capital gains and dividends taxed at a 20 percent rate instead of 15 percent.

That’s bad news for small business owners who report more than $200,000 in income as individuals or more than $250,000 as joint filers.

Only 9 percent of taxpayers who report small business income make this much money, however, according to the Center on Budget and Policy Priorities. Plus many of these taxpayers are passive investors in small businesses, not owner/operators.

Most small business owners are middle-income individuals who would receive tax cuts under Obama’s budget and would benefit from his proposal for health care reform, said Robert Greenstein, the center’s executive director.

“In fact, small businesses would win under this budget,” Greenstein said.

Small business owners who make the most money, however, also are the most likely to invest in their businesses and hire additional workers, according to the U.S. Chamber of Commerce.

Recession, Tax Plans Worry Donors And Nonprofits

The Associated Press published an article recently discussing how some non-profits and donors are afraid that Obama’s newest tax changes will negatively affect them. You can find a snippet of the post below, but the full text can be found here.

Chicago philanthropist Richard Kiphart contributed generously to Barack Obama's campaign and is glad he backed a winner.

But he's among many donors and recipients in the philanthropic world worrying that Obama's new tax proposals could deter future giving at a time when many nonprofits already are in crisis mode.

"I just think they're wrong on this," said Kiphart, a corporate finance executive at global investment firm William Blair & Company. "All these organizations are crying: 'Why are they doing this to us?'"

Many wealthy Americans weren't shocked when Obama's budget proposal called for raising their income taxes. But there was surprise — and some alarm — over a separate proposal to limit the deductions that couples earning more than $250,000 can claim for charitable gifts.

Under the plan, a donor in the highest tax bracket would save $280 on a $1,000 charitable deduction, instead of $396.

Obama's budget director, Peter Orszag, says the change wouldn't occur until 2011, when the administration hopes a recovery will be under way, and there's a chance the proposal will die in Congress. But many in the nonprofit world are uneasy.

"This is a time of tremendous anxiety in the nonprofit sector," said Kathleen McCarthy, director of the Center for the Study of Philanthropy at City University of New York.

"A lot of these organizations are going to die in the next six or nine months," she said. "Saying you want to play around with the tax code only makes things worse psychologically."

Nonprofit officials and philanthropy experts interviewed by The Associated Press agreed that tax consequences are a secondary factor for many donors.

Fact Check: Would Obama's tax policy harm people with special needs?

From CNN.com:

The Statement:

During a speech Friday, Oct. 24, in Pittsburgh, Pennsylvania, Gov. Sarah Palin noted that parents of children with special needs often set up trusts to help ensure long-term assistance. "Many families with special needs children or dependent adults" are concerned that Sen. Barack Obama "plans to raise taxes on precisely these kinds of financial arrangements," she said. "They fear that Senator Obama's tax increase will have serious and harmful consequences, and they're right."

The Facts:

Some parents create special needs trusts in order to help ensure that their children with disabilities or other special needs will have help well into the future, after the parents retire or die. The Federal Citizen Information Center Web site explains that the primary advantage of a trust, rather than a gift or inheritance, is that the assets are owned by the trust, not the beneficiary. So, funds will be available to the person with special needs, but will not cause that person to be disqualified from the government-run Medicare program. The trust funds typically provide for such things as glasses, independent checkups, transportation, equipment, training, education, and other programs, the Web site says.

The way most of these trusts are structured, the interest they gain is taxed as part of the parents' income. Palin, in her remarks, suggests that Obama will increase taxes on these trusts in general, thereby reducing the funds in them. The McCain campaign did not respond to requests to explain or comment on the record.

Obama has pledged to increase taxes only on individuals with incomes over $200,000 and families with incomes over $250,000. He is not offering an exception for interest in special needs trusts — that income counts toward the total. So, if someone's taxes go up under Obama, the interest in a trust fund is part of what will be taxed at a higher rate.

But Obama does not have a plan to increase taxes on special needs trusts in general. And Jason Furman, economic adviser for the Obama campaign, noted that Obama has vowed to fix his plan if any individual making less than $200,000 or family making less than $250,000 is left paying higher taxes. So, if Obama's tax plan, unintentionally, forced taxes up on a special needs trust for someone at a lower income, the tax plan would change, and the person's taxes would not go up, Furman said.

Sen. John McCain is promising across-the-board tax cuts, so no one with a special needs trust would see a tax hike under his plan. As the CNN Truth Squad has reported, the nonpartisan Tax Policy Center says Obama's tax cuts would be larger for people in middle and lower income ranges.

Before Palin launched this attack Friday, the McCain campaign told the Wall Street Journal that it was coming. The newspaper, in an article published online Friday, quoted Andy Imparato, president of the nonpartisan American Association of People with Disabilities, saying he has not heard any complaints from constituents about Obama's tax plan. It was not clear what Palin's evidence was that "many families" were concerned about Obama's plan.

The Verdict:

Misleading. Obama's plan would increase taxes on individuals making more than $200,000 and families making $250,000, and it would include the income on interest in special needs trusts. But Obama does not have a plan to raise taxes on special needs trusts in general.

An Updated Analysis of the 2008 Presidential Candidates' Tax Plans

The Tax Policy Center has updated their analysis of the Presidential candidate’s tax plans. Below is the abstract from their analysis, but you can read the full text, or download the study as a PDF, by visiting their website.

Tax and fiscal policy will loom large in the next president's domestic policy agenda. Nearly all of the tax cuts enacted since 2001 expire at the end of 2010 and the individual alternative minimum tax (AMT) threatens to ensnare tens of millions of Americans. While a permanent fix palatable to both political parties has proven elusive, both candidates have proposed major tax changes. This report describes how we performed our modeling and analysis, outlines the major tax proposals, and discusses the implications of their policies for the revenue raised, taxpayer economic activity, and the distribution of the tax burden.

Obama Admits Tax Hikes Could Harm Economic Growth

As many of you may have already heard, earlier in the week Obama was interviewed by George Stephanopoulos and acknowledged that tax hikes hurt the economy.

"I think we've got to take a look and see where the economy is. I mean, the economy is weak right now. The news with Freddie Mac and Fannie Mae I think, along with the unemployment numbers, indicates that we're fragile."

Is History Siding With Obama’s Economic Plan?

From NYTimes.com:

“Clearly, there are major differences between the economic policies of Senators Barack Obama and John McCain. Mr. McCain wants more tax cuts for the rich; Mr. Obama wants tax cuts for the poor and middle class. The two men also disagree on health care, energy and many other topics.

Such differences are hardly surprising. Democrats and Republicans have followed different approaches to the economy for as long as there have been Democrats and Republicans. Longer, actually. Remember Hamilton versus Jefferson?

Many Americans know that there are characteristic policy differences between the two parties. But few are aware of two important facts about the post-World War II era, both of which are brilliantly delineated in a new book, “Unequal Democracy,” by Larry M. Bartels, a professor of political science at Princeton. Understanding them might help voters see what could be at stake, economically speaking, in November.

I call the first fact the Great Partisan Growth Divide. Simply put, the United States economy has grown faster, on average, under Democratic presidents than under Republicans.

The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut.

Such a large historical gap in economic performance between the two parties is rather surprising, because presidents have limited leverage over the nation’s economy. Most economists will tell you that Federal Reserve policy and oil prices, to name just two influences, are far more powerful than fiscal policy. Furthermore, as those mutual fund prospectuses constantly warn us, past results are no guarantee of future performance. But statistical regularities, like facts, are stubborn things. You bet against them at your peril.

The second big historical fact, which might be called the Great Partisan Inequality Divide, is the focus of Professor Bartels’s work.”