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Study: Obama's Spending Plan Raises Middle Class Taxes

10:54 AM, Oct 2, 2012 • By DANIEL HALPER
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A new study by Douglas Holtz-Eakin of the American Action Forum finds that President Barack Obama's spending plan would raise taxes on the middle class.  "[T]axpayers making as little as $30,000 will carry $1,500 more in taxes annually over the next 10 years," the study finds.

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The significance of this study is that it contradict Obama's pledge not to raise taxes on the middle class. “If you are a family making less than $250,000 a year, you will not see your taxes go up,” Obama said in 2008.

But if the American Action Forum study is correct, and if Obama is reelected, he will either break his pledge not to raise taxes on the middle class or his commitment to balance the budget.

The study hinges on Obama's commitment to balance the budget by 2022. "[The] paper outlines the tax implications of the Administration's current spending plans. I compute the tax increases necessary to achieve primary budget balance by at least 2022 under a variety of assumptions on the mix of fiscal adjustment and breadth of tax increases across taxpayers," Holtz-Eakin writes in the study's executive summary. 

There are not enough millionaires to make up the gap, Holtz-Eakin finds. "The paper finds that, in order to achieve primary budget balance by at least 2022, taxing only millionaires would require raising their taxes to 123.9 percent. Taxing only those individuals making over $500,000 would require an increase from 30.6 percent to 95.5 percent."

And that's why the burden would fall to the middle class, in order for Obama to meet his commitment. "If spending plans are unchanged, it appears inevitable that the middle class will face higher taxes.  Imposing the entire burden on millionaires ultimately requires tax rates exceeding 75 percent of their income, even if one-half of the adjustment occurs on the spending side.  Under a similar assumption, and assuming that higher taxes are phased in slowly over the budget windows, it is reasonable to conclude that taxpayers making as little $30,000 will face higher taxes, and that the average increase for taxpayers would be roughly $1,500 annually over the next 10 years."

Holtz-Eakin was an economic adviser to John McCain during the Arizona senator's 2008 presidential run. He was also director of the Congressional Budget Office, the non-partisan federal agency that provides budget and economic calculations to Congress.  

The entire study can be read here.

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