WASHINGTON — Sen. Barack Obama proposed a tax overhaul Tuesday that could save lower- and middle-class workers and seniors $500 to $1,500 a year by shifting more of the burden to well-off investors and corporations.
The Democratic presidential candidate's tax proposal held a populist appeal and offered more details than what Democratic front-runner Sen. Hillary Clinton has so far proposed, but it didn't address the alternative minimum tax, which threatens to force higher taxes on 19 million middle-class American workers and their families unless it's changed.
His proposed tax cuts and credits, aimed at workers earning $50,000 or less per year, would cost the Treasury an estimated $85 billion annually. To offset that loss, the Illinois Democrat said he'd raise the top bracket of tax rates on dividends and capital gains from 15 percent now to as high as 28 percent — where they were in the 1980s under President Reagan.
He also promised to close the "carried-interest" tax loophole, which hedge funds have exploited, to repeal or rein in oil and gas industry breaks and international tax deferrals, and to pressure several countries to stop shielding U.S. tax evaders.
"We've gone too far from being a country where we're all in this together to a country where everyone's on their own," Obama told the Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute, center-left think tanks.
Obama criticized the Bush administration for carving out too many perks for the wealthiest Americans and for companies that, despite the favors, sent jobs and profits overseas. He also said that too much strain on the middle class ultimately would hurt American competitiveness. "We all have a stake in one another's success."
Obama's plan would offset payroll taxes on lower- and middle-class workers with income tax cuts of up to $500 per worker or $1,000 per family. That could completely eliminate income taxes for 10 million Americans.
He also proposed a tax credit of roughly $500 per year for an estimated 10 million middle-class homeowners who don't get the mortgage interest deduction because they don't itemize.
Americans 65 and older who earn less than $50,000 per year wouldn't have to pay the income tax or even file a return. That would take about 7 million seniors off the income tax rolls — saving each about $1,400 per year — and save perhaps 22 million seniors from filing income tax returns.
Finally, Obama proposed simplifying tax filings for about 40 million middle-class filers who take the standard deduction. He'd have the Internal Revenue Service send them prepared tax forms based on wage and bank account statements that the government collects. Those filers could simply sign those forms and send them back.
Obama's campaign released positive reviews of the plan from several leading tax experts, including Alan Auerbach, director of the Burch Center for Tax Policy and Public Finances at the University of California, Berkeley. Auerbach said the plan would "make work more rewarding and paying taxes less difficult" for a majority of taxpayers.
But J.D. Foster, a senior fellow with the conservative Heritage Foundation and a former economic adviser to President Bush, called Obama's plan "the kind of tax plan that produces good sound bites but is substantively naive at best." He said the redistribution of the tax burden could slow job creation and make senior citizens who invested their money wisely pick up the tab for seniors who didn't do as well.