Obama Would Shift Tax Burden to Wealthy

WASHINGTON — Taking aim at the nation's rising income disparity, Senator Obama of Illinois is proposing to raise taxes on corporations and top-earning investors to pay for a middle-class tax cut of more than $80 billion.

In a policy speech here yesterday, the Democratic presidential hopeful laid out a tax plan that he said would ease the burden for as many as 150 million Americans, particularly seniors and homeowners. He said he would recoup the estimated $80 billion to $85 billion in lost revenue by hiking tax rates on capital gains and dividends, the profits of hedge fund managers, and by eliminating corporate tax breaks for oil and gas companies. The proposal is aimed at adding "fairness" to a tax code that he characterized as increasingly and disproportionately benefiting the wealthiest Americans. "For decades, we've seen successful strategies to ride anti-tax sentiment in this country toward tax cuts that favor wealth, not work," Mr. Obama said in a 20-minute address organized by the Tax Policy Center. "And for decades, we've seen the gaps in wealth in this country grow wider, while the costs to working people are greater."

Mr. Obama's plan would create a refundable income tax credit of up to $500 a person and $1,000 a family to offset the payroll tax on the first $8,100 of their earnings. His advisers said they have not determined a precise income cut off, but they said about 95% of working taxpayers would be eligible and that the tax credits would phase out for households with annual incomes in the $150,000 to $200,000 range.

The result of the credits, the campaign said, would be that about 10 million people would see their income taxes completely erased. Mr. Obama is placing responsibility for paying for the middle-class tax relief squarely on the shoulders of corporations and high-earning investors.

He becomes the second leading Democratic candidate to endorse a tax increase on capital gains and dividends, joining a former North Carolina senator, John Edwards. The party's front-runner, Senator Clinton, gave no indication yesterday of whether she would do the same, although her campaign is preparing a tax plan to be unveiled in the coming months.

Without specifying a figure, Mr. Obama said he would raise the top rates on both capital gains and dividends to a point higher than 20% and to as much as 28%, the rate that President Reagan signed into law in 1986. Mr. Edwards has proposed a 28% rate on capital gains. The current rate is 15%, which would increase to 20% in 2010 if President Bush's tax cuts are not renewed.

The Obama campaign earlier had backed an even higher increase on dividends — to the pre-Bush level of 39.6% — but his advisers said yesterday that they had reconsidered that proposal, which first emerged as part of his plan for universal health care.

Other aspects of Mr. Obama's tax plan include a proposal to eliminate all income taxes for senior citizens who make less than $50,000, as well as a mortgage tax credit for homeowners that would save the average recipient an estimated $500 a year.

The Illinois senator is also aiming to simplify the tax filing process by requiring the Internal Revenue Service to give many taxpayers the option of having their tax forms "pre-filled" so that all they need to do is verify, sign, and return them. Mr. Obama said this could save Americans more than $2 billion in tax preparer fees, more than 200 million hours of work, "and an incalculable amount of headache and heartburn."

In addition to raising taxes on top-bracket capital gains and dividends, Mr. Obama said he would pay for his middle-class tax cuts by cutting out breaks for corporations and cracking down on the use by some multinational companies of so-called international tax havens to evade paying the IRS. He is also banking on a proposal he endorsed earlier this year that would more than double the taxes paid on the "carried interest" profits of hedge fund and private equity managers.

The first-term senator detailed his tax policy a day after he delivered a speech at the Nasdaq Market site in Times Square challenging Wall Street executives to increase transparency and demonstrate more concern for the middle class.

His plan drew heavy criticism from the right, principally for the proposal to raise taxes on investment. "That is a guaranteed way to not only wreck the economy and the capital markets, it's a guaranteed way for the government to lose tax revenue," the director of tax policy for Americans for Tax Reform, Ryan Ellis, said, pointing to trends since 1970 that show decreases in tax revenue following hikes in the capital gains rate.