Looking At the 5% Who Won't Get Obama Tax Cut

In his acceptance speech Friday, Democrat Barack Obama said he would cut taxes for 95 percent of all working families. Len Burman, director of the nonpartisan Tax Policy Center, says the other 5 percent includes the top two tax brackets.


Back to last night's Obama speech for a moment. The Democratic candidate talked about taxes and about what he would do...

Senator BARACK OBAMA (Democrat, Illinois, Presidential Candidate): Listen now, I will cut taxes. Cut taxes for 95 percent of all working families...

(Soundbite of cheering)

Sen. OBAMA: ...because in an economy like this, the last thing we should do is raise taxes on the middle class.

SIEGEL: Also about what he said John McCain would do or would not do.

Sen. OBAMA: ...hundreds of billions in tax breaks for big corporations and oil companies, but not one penny of tax relief to more than 100 million Americans.

SIEGEL: Well, just in case you weren't watching with a tax accountant, a demographer or an economist, we thought that we'd sort through some of those numbers. And we've called upon Len Burman, director of the non-partisan Tax Policy Center, which has studied the candidates' tax plans. Welcome back.

Mr. LEN BURMAN (Director, Tax Policy Center): Happy to be here.

SIEGEL: Barack Obama said he would not raise taxes on 95 percent of working families. Who are the other five percent? How much do you have to make to be part of the five percent?

Mr. BURMAN: Basically, it's people in the top two tax brackets. For a couple, it's income over about $200,000. For a single family, it's about $165,000 of taxable income. So, that's before deductions.

SIEGEL: He was talking about the federal income tax when he said that. But he's also talked elsewhere about Social Security tax.

Mr. BURMAN: Yeah. Actually, he's proposed to extend - not entirely clear what the tax would be, but a tax on people with incomes over $250,000 to help bolster Social Security. Part of it would be paid by individuals, and part paid by companies.

And the only thing he's been specific about is that the combined rate wouldn't be more than about four percent. But that would apply to very, very high income households.

SIEGEL: According to Barack Obama last night, John McCain, he said, would give no tax relief to more than 100 million Americans. Does that seem accurate to you?

Mr. BURMAN: Not according to our estimates. I mean, there are a couple of ways in which Senator McCain's plans have fairly broad benefits. One is he cuts the corporate tax, which Senator Obama characterizes as something for corporate fat cats.

But basically anybody who owns stock or, you know, money in the bank is likely to get a higher rate of return if corporations pay less tax. Second, Senator McCain would extend all the tax cuts that expire at the end of 2010. And those include provisions that affect low and middle income families as well as those with very high incomes.

SIEGEL: And Obama on the tax cuts that expire at the end of 2010?

Mr. BURMAN: He would extend almost all of them. He'd extend the tax cuts that apply to low and middle income households, up to the top two brackets. For those families he would actually restore taxes to what they were before 2001.

SIEGEL: You've spoken of middle-income taxpayers. Senator Obama spoke of taxes on the middle class. Is it understood, is there some common definition among people who do tax policy as to what the middle class is or what middle-income tax earners are?

Mr. BURMAN: Not really. I mean, you can look at the statistics and say that a middle income household is somebody earning, you know, between the second fifth and the top fifth of the income distribution. That would be income of between $19,000 and $111,000.

SIEGEL: That would leave out the fifth lowest incomes and the fifth highest incomes; you'd get middle income that way.

Mr. BURMAN: Yeah. I mean, actually the campaigns seem to be taking a much more expansive view of middle class. Clearly, Senator Obama is talking about people with incomes under a quarter-million dollars. In some ways, that's consistent with what you get from surveys, because if you interview people, 95 percent of Americans say that they're middle class, including some who are objectively quite poor and some who are quite well-off.

SIEGEL: The Obama campaign has been very critical of John McCain for saying that rich starts at an annual income of about $5 million a year. How many Americans make $5 million a year?

Mr. BURMAN: It's a tiny fraction, probably about one-tenth of one percent.

SIEGEL: So that would mean that nearly everyone is middle class, in that case, if that's where middle class ends and rich begins.

Mr. BURMAN: Senator McCain has a very inclusive definition of middle class.

SIEGEL: Len Burman, thank you very much for talking with us today.

Mr. BURMAN: My pleasure.

SIEGEL: Len Burman is director of the nonpartisan Washington-based Tax Policy Center, which has studied the tax proposals of both Senator Obama and Senator McCain.

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