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President Obama's Proposed Tax Changes

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President Obama's Proposed Tax Changes

In his January 27th State of the Union address, President Obama touched on his plans for U.S. tax policy over the next few years.  Continuing with what the Bush Administration had introduced, he called for an extension through 2011 of the rules that let small businesses write off or depreciate in the first year, up to $250,000 of capital expenditures. 

He also proposed eliminating capital gains taxes for investments in small businesses.  He also spoke of government expanding the child care and dependent care tax credit, including increasing the tax credit to 35 % of qualifying expenses (from 20% currently).  This means families could claim up to $3,000 in expenses for one child or $6,000 for two children, and the maximum credit a family with two children making $80,000 a year could claim would increase by $900, from $1,200 to $2,100.  This increase would begin to phase out for families earning more than $85,000 per year, but there would still be some tax benefit for families earning up to $115,000 per year.

Another thing the President spoke of was making the American Opportunity Tax Credit permanent.  This credit helps students pay for college by providing a tax credit up to $2,500 per year for 4 years.  And to help people put away more money in savings, the President proposed that employers with more than 10 workers give their employees an option to automatically put money into IRAs.  Small businesses would be get up to $1,000 per year (for 3 years) for encouraging their employees to participate in an automatic IRA program.  And the President also proposed expanding the Saver's Credit to match 50 percent of an individual's contribution up to $500 for those earning up to $65,000, with reduced credits being given to those making under $85,000.

To pay for these tax breaks, the President proposed a number of things.  Number one, he intends to pursue large financial institutions and make them pay for the federal government's losses from the market meltdown.  Secondly, he proposed that a .15% fee be imposed on certain liabilities of banks, insurance companies, and thrifts with assets of $50 billion or more. ould be used to offset the budget deficit.

Thirdly, the President proposed that high-income households (those earning more than $200,000 per year /$250,000 for married couples pay income tax rates as high as 39.6 percent.  He also proposed that the capital gains tax and dividends tax, currently at 15% for most taxpayers, be raised in 2011 to 20%.

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