Update: This post has been corrected to reflect a more consistent set of CBO data on the Affordable Care Act.
The centrality of tax policy to the 2012 election raises the question: What has actually changed in the tax code since Obama took office?
Three of the big bills of Obama’s tenure — the American Recovery and Reinvestment Act (or the stimulus act), the Affordable Care Act, and the Bush tax cuts reauthorization/payroll tax cut deal from 2010 — contain most of the changes that have been passed since January 2009. Let’s run through them, bill by bill. Keep in mind, of course, that Congress writes the laws, and the bills that actually passed only somewhat reflect Obama’s priorities.
Of the stimulus bill, $289.6 billion or 36 percent, was devoted to tax cuts, of which the biggest by far was the Making Work Pay tax credit, which was a refundable tax credit of $400 for individuals and $800 for married couples filing jointly implemented by reducing tax withholding. That structure meant that a fair number of people didn’t even notice their taxes were being cut, even though the credit cost a total of $116.2 billion.
The next biggest provision was a $69.8 billion extension to a patch to the Alternative Minimum Tax (AMT), which primarily benefited upper-middle income filers. After that came $20 billion in tax credits to promote renewable energy, a $14.8 billion increase in the refundability of the child tax credit, and the $13.9 billion “American Opportunity” tax credit for low-income college students. All other tax provisions, which were mostly changes to existing credits and deductions (such as an expansion of the Earned Income Tax Credit), were less than $10 billion a piece.
Not including the AMT patch, which was widely expected to pass anyway, here’s the Tax Policy Center‘s breakdown of who benefited from the stimulus’s tax breaks:
Affordable Care Act
The tax cuts are primarily the insurance subsidy tax credits, which provide the bulk of the bill’s assistance to those who make too much to qualify for the expansion of Medicaid to people making up to 133 percent of the poverty line. The credits are refundable and paid directly to insurers. To be eligible, one must make between 100 and 400 percent of the poverty line (between $23,050 and $92,200 for a family of four) and not be covered by an employer plan.
The credits cap premium payments at different levels depending on income, with premiums for those at the poverty line capped at 2 percent of income ($461) and premiums for those at 400 percent of the line capped at 9.5 percent of income ($8,759). According to the CBO, these subsidies — which take effect at the start of 2014 — cost $777 billion over ten years, and amount to a little less than half of the cost of the coverage provisions of the ACA (Medicaid and CHIP expansion makes up the other half).
The law also includes a tax credit for small businesses who cover their employees, which took effect in 2010. Small businesses, for the purpose of this credit, are defined as having under 25 employees and an average annual wage of under $50,000, with the biggest credit going to those with under 10 employees. This credit costs about $41 billion over ten years, a small fraction of the cost of the insurance subsidies.
To offset the cost of Medicaid expansion and insurance subsidies, the law also includes a number of revenue-raising tax provisions. The most notorious, of course, is the individual mandate, but that raises a small amount of revenue ($34 billion over 10 years) compared to other provisions. For example, the law imposes the excise tax on health plans costing over $10,200 for individuals or $27,500 for families (cutoffs that vary with location, age, and gender), meant to deter consumers from picking unnecessarily costly plans. That raises $87 billion over 10 years.
About the same size, at $81 billion over 10 years the provision requiring large employers (that is, ones with over 50 employees) who do not adequately cover their workers to pay a penalty. Biggest of all is a bump in the Medicare payroll tax from 1.45 percent to 2.35 percent for those making over $250,000, which raises about $200 billion over ten years.
The law also includes a number of smaller provisions, such as a 10 percent tax on indoor tanning, a tax on medical devices manufacturers, and a fee on health insurance providers, that combine to about $320 billion over ten years.
2010 Tax Deal
The tax cut deal of December 2010 extended the all the Bush tax cuts that applied to the personal income tax through December 2012 and replaced the Make Work Pay tax credit from the stimulus bill with a 2 percentage point payroll tax cut. It also reimposed a limited version of the estate tax, and extended the stimulus bill’s American Opportunity college tax credit and its expansion of the Earned Income Tax Credit and child tax credit. Finally, it included some relatively uncontroversial “tax extender” provisions and an extension of the AMT patch, as well as an extension of unemployment insurance, the lone non-tax provision in the law.
The Bush tax cut expansions were by far the most expensive part of the deal, totaling $363.5 billion over 10 years. Second was the AMT patch at $136.7 billion, followed by the payroll tax cut at $111.7 billion. The extenders costed $77.2 bilion, and the stimulus tax cut extensions only $44.1 billion.
The Tax Policy Center helpfully broke down how the bill affected different income groups. Here’s the tax cut each income group got, relative to the previous policy with the Bush cuts, the AMT patch, and the stimulus tax cuts all in effect. Longer lines mean a larger cut:
The payroll tax cut was extended this past February through this year, after being temporarily extended in December adding another $110 billion ($21 billion for the first extension, $89 billion for the second) in tax cuts.
Congress has also passed a number of smaller bills that included changes to the tax code. The most notable is probably the HIRE Act, passed in February 2010, which provided a temporary holiday from the employer side of the payroll tax for workers hired between March 19, 2010 and Dec. 31, 2010, as well as a credit to businesses that hired new workers. That came to $17.5 billion. Other bills changed the tax reporting requirements in health reform, rules regarding fees charged of government vendors, and the firearms excise tax. But the provisions in the stimulus, health reform, and the tax deal are by far the most significant.
In sum, taking those big three bills and the HIRE Act into account, Obama has cut taxes by $1.98 trillion and raised them by $834 billion, for a net tax cut of $1.15 trillion during his tenure.
And that’s just the stuff that Obama’s signed into law. He has a whole slew of other proposals, most of which are contained in his long-term deficit reduction plan, as submitted to the supercommittee last fall. That plan included the American Jobs Act, which would have cut workers’ payroll taxes in half for the first $5 million in payrolls per business, and allowed businesses to deduct 100 percent of expenses from their taxable income. The act would cost a total of $447 billion over 10 years.
The deficit reduction plan also proposed phasing out the high-income Bush tax cuts — including returning the estate tax to its 2009 level — permanently indexing the AMT exemption to inflation, ending tax breaks that benefited the corporate jet, oil, and gas industries, limiting itemized deductions to 28 percent for high-income filers, and ending the “carried interest” loophole that allows hedge fund managers to pay lower capital gains rates on their regular income. All told, the tax reform provisions would raise $1.573 trillion over ten years.
The Tax Policy Center once again rose to the occasion and did a great distributional analysis of the proposal, relative to the current policy with the AMT patch and Bush tax cuts still in effect:
Which brings us to Obama’s latest proposal, which breaks off the Bush tax cuts expiry portion of his deficit reduction proposal. According to the TPC’s calculations, the latest proposal, as one would expect, doesn’t have any impact for those making under $250,000, but then again, letting all the cuts expire doesn’t have much of an effect either. The people this all really matters for are the richest of the rich:
Obama’s first term has been heavy on tax cuts, especially those — like the stimulus tax breaks, insurance tax credits, and payroll tax cut — targeted at lower and middle-income people. Of the almost $2 trillion in tax cuts passed during his tenure, only the $570 billion that went toward extending the Bush tax cuts and the AMT patch primarily benefited upper and upper-middle income families.
He looks set to continue those lower-income breaks going forward, but with a new emphasis on both phasing out upper-income cuts (like the Bush cuts for those making over $250,000 a year) and imposing new taxes on high-income people, through measures like the itemized deduction cap, the closure of the carried interest loophole, and the Buffett rule. What’s more, the new taxes in the Affordable Care Act set to take effect in 2014, such as the excise tax on expensive plans and the Medicare payroll tax surcharge, primarily target high-income people, while the law’s tax cuts primarily target low-income people. So even if Congress takes no new action, the phase out of the Bush cuts and the implementation of the ACA look to set back rich taxpayers considerably.