Reuters Article on Obama’s Tax Proposals Misses the Mark

February 2, 2010

The popular Drudge Report website is linking to a Reuters article claiming that Obama's budget outlined on Monday would amount to "backdoor tax increases for middle-class families." Here's how the article starts off:

The Obama administration's plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.

In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year — effectively a tax hike by stealth.

While the administration is focusing its proposal on eliminating tax breaks for individuals who earn $250,000 a year or more, middle-class families will face a slew of these backdoor increases.

The targeted tax provisions were enacted under the Bush administration's Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

What the article does not mention is that Obama's budget extends all of the Bush tax cuts for single returns making less than $200,000 and married returns making less than $250,000. Whatever you think of Obama's proposed budget and tax policies, this omission in an article entitled "Backdoor taxes to hit middle class" is either evidence of intentional deceit or terrible reporting.

The reporter also seems to not fully understand the alternative minimum tax. She writes:

Millions of middle-class households already may be facing higher taxes in 2010 because Congress has failed to extend tax breaks that expired on January 1, most notably a "patch" that limited the impact of the alternative minimum tax. The AMT, initially designed to prevent the very rich from avoiding income taxes, was never indexed for inflation. Now the tax is affecting millions of middle-income households, but lawmakers have been reluctant to repeal it because it has become a key source of revenue.

Without annual legislation to renew the patch this year, the AMT could affect an estimated 25 million taxpayers with incomes as low as $33,750 (or $45,000 for joint filers). Even if the patch is extended to last year's levels, the tax will hit American families that can hardly be considered wealthy — the AMT exemption for 2009 was $46,700 for singles and $70,950 for married couples filing jointly.

First off, Congress almost always passes an AMT patch retroactively, not in advance of the tax year. And to say that lawmakers have been reluctant to repeal it because it's a key source of revenue, such a statement is just wrong. Every year, lawmakers have patched it, and the current AMT revenue only amounts to about 2 percent of total income tax revenue, or less than 1 percent of total federal revenues…far from a "key revenue source." And the last sentence is just misleading as it implies a family making $48,000 is going to get hit by AMT without explaining that a tax return pays the higher of its alternative minimum tax and ordinary income tax.

Update: According to a new link on Drudge, Reuters has pulled this story.

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