Pay stagnant, and little change
in your tax bill
President Barack Obama’s war on income inequality will end in a stalemate with little ground gained.
The U.S. tax code has proven to be stubborn and unyielding to Obama’s tinkering. The result is most Americans aren’t paying that much more, or less, in taxes.
“The recession narrowed the fiscal space for a lot of different proposals,” said Scott Greenberg, an analyst with the free-market oriented Tax Foundation. “But I don’t really think that we can characterize tax reform as a goal of this administration. They’ve treated taxes as a means to ends.”
Cumulative income growth by income percentile
The rich continue to get richer, though recessions and Obama’s tax hikes on the wealthiest Americans have slowed the trend.
Obama delivered on some, though certainly not all, of his modest pledges to provide tax credits to the less advantaged and to small businesses. On a few other promises, he ended up getting some of what he wanted, such as tax credits for workers, for companies that create jobs and for college students.
“Most people who look at the corporate tax system today consider it as every bit as dysfunctional as when Obama entered office, maybe more,” said Joseph Thorndike, director of the tax history project at the nonprofit Tax Analysts.
Tax change by income percentile
For most people, Obama's tax policy had little to no effect on taxes paid. The exception: the wealthiest Americans.
Source: PolitiFact estimate based on IRS, Census data
ELI MURRAY | Times
“He could have proposed all the tax increases in the world, but nothing would have come from it. Nothing even came to a vote,” said Roberton Williams, a fellow at the Tax Policy Center.
The centerpiece of his tax agenda was a repeal of tax breaks for higher incomes enacted under his predecessor, President George W. Bush.
Bush tax cuts
The Bush cuts were set to expire at the end of 2010. When that time came, Democratic legislation to restore higher rates for the wealthy while maintaining the Bush rates for everyone else couldn’t make it past congressional Republicans. So Obama brokered a compromise package.
The 2010 deal, which extended all of the tax cuts for two years, angered many in his own party. Sen. Bernie Sanders, I-Vt., called it “unconscionable” in an eight-and-half-hour symbolic filibuster given the ballooning national debt and rising income inequality.
Obama’s defense: “A long political fight that carried over into next year might have been good politics, but it would be a bad deal for the economy, and it would be a bad deal for the American people.”
By late 2012, the battle over the Bush cuts brought the U.S. government to the edges of a fiscal cliff, and Obama once again reached a deal with Republicans in Congress. The American Taxpayer Relief Act of 2012 raised the rates on the wealthy, though not quite to the levels Obama and the Democrats wanted.
The White House in its 2013 budget had proposed raising taxes for married couples making over $250,000. The agreed-upon income threshold was almost double that: $450,000. To put it in perspective, the White House proposed raising taxes on the top 5 percent, while Congress would only agree to raise taxes on the top 0.7 percent.
Everyday Americans leave the Obama era with a mixed bag of tax breaks and hikes.
Obama proposed some tax increases that affect the middle class, such as one on smokers and on people who choose not to have health insurance. Given their association with the Affordable Care Act, which President-elect Donald Trump has vowed to roll back, Thorndike predicts these taxes will be short-lived and are likely to be repealed all at once.
Middle-class taxpayers also saw their lower Bush-era income tax rates extended permanently. The net result: Tax increases have more significantly impacted the wealthiest Americans.
“It is very clear that the Obama administration intended for taxes to rise, and it is the case now that the rich are paying more than they have been in the last decade and a half,” Greenberg said.
Meanwhile, income inequality continued to rise under Obama, though it slowed after 2013. A 2016 report by the nonpartisan Congressional Budget Office suggests that taxation has something to do with it.
The CBO notes that there was a small decrease in income inequality in 2013, spurred by higher rates on the wealthy that made the federal tax system “the most progressive it has been since the mid 1990s.”
Still, experts are doubtful that this small victory will turn the tide against growing inequality. Thorndike said the repeal of the Bush tax cuts for the wealthy resulted in marginal progress, but the issue is in no danger of disappearing.
“The problem is that incomes are growing more rapidly at the top than the rest of distribution,” said Williams. “Taxes offset some of that, but the trend was for the rich to get richer.”