WASHINGTON (AP) — Taxes too high? Actually, as a share of the nation’s
economy, Uncle Sam’s take this year will be the lowest since 1950, when the
Korean War was just getting under way.
And for the
third straight year, American families and businesses will pay less in
federal taxes than they did under former President George W. Bush, thanks to
a weak economy and a growing number of tax breaks for the wealthy and poor
payments this year will be nearly 13 percent lower than they were in 2008,
the last full year of the Bush presidency. Corporate taxes will be lower by
a third, according to projections by the nonpartisan Congressional Budget
The poor economy
is largely to blame, with corporate profits down and unemployment up. But so
is a tax code that grows each year with new deductions, credits and
exemptions. The result is that families making as much as $50,000 can avoid
paying federal income taxes, if they have at least two dependent children.
Low-income families can actually make a profit from the income tax, and the
wealthy can significantly cut their payments.
state of the tax code is simply indefensible,” says Sen. Kent Conrad, D-N.D.,
chairman of the Senate Budget Committee. “It is hemorrhaging revenue.”
In the next few
years, many can expect to pay more in taxes. Some increases were enacted as
part of President Barack Obama’s health care overhaul. And many states have
raised taxes because — unlike the federal government — they have to balance
their budgets each year. State tax receipts are projected to increase in all
but seven states this year, according to the National Council of State
But in the third
year of Obama’s presidency, federal taxes are at historic lows. Tax receipts
dropped sharply in 2009 as the economy sank into recession. They have since
stabilized and are expected to grow by 3 percent this year. But federal tax
revenues won’t rebound to pre-recession levels until next year, according to
In the current
budget year, federal tax receipts will be equal to 14.8 percent of the Gross
Domestic Product, or GDP, the lowest level since Harry Truman was president.
In Bush’s last year in office, tax receipts were 17.5 percent of GDP, just
below their 40-year average.
The lack of
revenue, combined with big increases in spending, means the federal
government will have to borrow 40 cents for every dollar it spends this
year. The annual federal budget deficit is projected to reach a record $1.5
both political parties vow to tackle the nation’s financial problems.
Republicans in Congress promise big spending cuts, and Obama says he wants
to reshape corporate taxes, closing loopholes to pay for lower overall
rates. Few in Washington, however, are calling for big tax increases, at
least in the short term.
system is clearly broken,” Donald Marron, a former economic adviser to Bush,
told the Senate Budget Committee at a recent hearing. “It fails at its most
basic task, which, lest we forget, is raising enough money to pay for the
At the request
of The Associated Press, The Tax Institute at H&R Block compared 2008 and
2010 tax bills for families at various income levels, showing how their
taxes have changed since Obama took office. Taxpayers are filing their 2010
tax returns this spring, while 2008 was the last full year that Bush was
president. The scenarios assume that each family had the same income, filing
status and number of dependent children in both years.
Income tax rates
remain unchanged. But many taxpayers are seeing their bills drop under Obama
because of more generous tax credits for college students, working families,
homebuyers and the working poor. Many of the changes were enacted as part of
the big economic stimulus package passed in 2009.
extended Bush-era tax cuts through 2012. Lawmakers let Obama’s Making Work
Pay tax credit expire at the end of 2010, but they replaced it with a
one-year cut in Social Security payroll taxes that is already showing up in
— A married
couple with two young children and a combined income of $25,000 will pay no
federal income taxes for 2010. Instead, they’ll get a payment of $7,085 — up
from $6,700 in 2008. The larger payment comes mainly from a more generous
Earned Income Tax Credit, which provides subsidies to the working poor. They
will also get a $1,000-per-child tax credit.
— A married
couple with two children, including one in college, and a combined income of
$50,000 would pay no federal income taxes, instead getting a payment of $734
from the government this year. However, they did better in 2008 when they
netted a $1,234 payment. That’s because Obama’s Making Work Pay credit was
worth less to them than the stimulus payment they received in 2008.
— A single
person making $50,000 while paying interest on a student loan would have a
2010 tax bill of $5,325 — a $63 decrease from 2008. The difference is due to
an inflation-based increase in the standard deduction and personal
— A married
couple with two children, including one in college, with some modest
investments and a combined income of $200,000 will see their federal income
tax bill drop by $780, to $28,496. Their tax bill is lower than in 2008
largely because itemized deductions are no longer limited for high-income
—A couple with
two kids in college, larger investments and a combined income of $1 million
will see their taxes drop by $6,740, to $277,699 in 2010. Their tax bill is
lower than in 2008 because they were able to defer a larger portion of their
income to retirement accounts, and because itemized deductions are no longer
limited for high-income families.