Analysis: Obama tax plan ‘modest’ help for low earners

President Obama’s new tax plan would soak the rich to give some assistance to the lowest earners, according to a new analysis from a nonpartisan group.

In other words, basically what both Obama and his GOP detractors said it was.

But the Urban-Brookings Tax Policy Center also found that, on average, Obama’s proposals would have little effect on the middle-class, even as the White House billed the plan “middle-class economics.” The middle 20 percent of earners, making between $49,000 and $84,000, would end up paying the government an average of around $7 more, the tax center said.

“Both critics and supporters describe the Obama plan as a major redistribution of income through the tax code. In reality, it would significantly boost taxes on the rich and only modestly cut them for many low-income households,” the center’s Howard Gleckman wrote.

“For most of the rest of us, the net impact would be relatively small though some people would enjoy hefty tax cuts and others would face big tax hikes.”

In fact, the top 1 percent – those making more than $663,000 a year – would see their after-tax income plummet by an average of $29,000. The elite among that 1 percent, with incomes topping $3.4 million a year, would see an even starker tax hike – $168,000.

But not all of those making six figures a year would face a tax increase under Obama’s plan, either: Households making between roughly $140,000 and $200,000 would actually see a tax cut of around $116.

The White House has only discussed the details of the president’s new plan, rolled out before his State of the Union address last week, in broad strokes. Gleckman said the Tax Policy Center would craft a fuller analysis after more details emerge from the president’s budget, which will be released on Monday.

Obama has already backed away from one of the planks of his plan – the proposal to tax withdrawals from 529 savings accounts for college expenses. The White House dropped the idea after Republicans pounded it as a middle-class tax hike, and Democrats said it was stepping on the president’s broader message of assisting the middle earners. The Tax Policy Center didn’t include the 529 proposal in its new analysis.

Other parts of the president’s plan include new tax increases on capital gains, including hiking the top rate to 28 percent and imposing new taxes on assets gained through inheritance, and a tax on the country’s largest banks. The new taxes would help pay for expanded incentives for higher education, child care expenses and the working poor. With or without the plan for 529 accounts, the proposals have little chance to advance in a GOP-controlled Congress.

That bank tax explains why the middle-class as a whole is largely unaffected by the president’s plan, and why middle-class families would face a wide variety of outcomes under the proposals. The Tax Policy Center said it assumed that the banks would pass the tax down to workers – which helps to explain why about half of that center quintile of earners would face a tax hike, of on average $290. Roughly a quarter of those households would see a tax cut, of around $550.