FACT SHEET | April 11, 2008

Democrats Are Committed to Relieving Tax Burden on the Middle Class

The tax dollars Americans pay every April 15 go to fund vital priorities for our country, from Social Security to homeland security.But America’s middle class needs dollars in their own pockets to pay for vital priorities, too – such as housing, educational expenses, heat, groceries, and health care. While congressional Republicans have shifted the tax burden to the middle class by insisting on massive tax cuts for the wealthy and corporations (Economic Policy Institute, 4/9/08), Democrats are fighting for smart, targeted tax relief for hard-working, middle-class Americans. (See DPC document entitled Myth vs. Reality: Bush Republican Tax Cuts) 

Specifically, in the Fiscal Year 2009 Budget Resolution (S. Con. Res. 70), provides for AMT relief for the middle class. In addition, SenatorBaucus, the Chairman of the Senate Committee on Finance, led an effort to use surplus funds in the Senate budget to provide tax cuts to every American taxpayer. This Democratic initiative, which was approved by a broad bipartisan consensus, includes extensions of tax cuts for America's working families, a standard deduction for property taxpayers, and tax relief for military men and women. 

Just three of these tax cuts (extension of the ten percent tax bracket, marriage penalty relief, and child tax credit) would put approximately $2,209 in tax savings back in the pockets of the hardworking American families. 

 

For more information, see the DPC reports entitled, S. Con. Res. 70, the Fiscal Year 2009 Budget Resolution and The Democratic Budget: Strengthening the Economy and the American Middle Class.

 

AMT Relief for the Middle-Class 

Democrats are committed to taking steps to prevent the spread of the Alternative Minimum Tax (AMT) so that it does not impose higher taxes on middle-class families. The Democratic Budget provides AMT relief for 2008, as the President requested. 

Democrats agree with the President that "the longer term solution to the problems associated with the individual AMT is best addressed within the context of other reforms to the tax system." Such reforms, as the Administration acknowledges, should be revenue neutral to avoid further burdening future generations. Under the resolution, the number of taxpayers subject to the AMT would not be allowed to increase - protecting more than 21 million taxpayers from being subjected to the AMT in 2008.

 

Extension of Tax Cuts for America's Working Families 

Democrats intend to extend a number of provisions aimed directly at America's working families that expire at the end of 2010, including: 

•The Ten Percent Tax Bracket. The Democratic Budget provides $121 billion in additional tax relief to all American taxpayers by extending the 10 percent tax bracket, which allows the first $16,050 of every American family's income ($8,025 for single filers) to be taxed at a 10 percent rate - a cut from the 15 percent rate originally applied to that income. Every American taxpayer benefits from the permanent extension of the 10 percent tax bracket, which lowers the effective tax burden on a portion of every wage-earner's income. As the following chart shows, America's middle-income taxpayers, however, will benefit the most.

 

 

The Joint Committee on Taxation (JCT) estimates the
average tax savings will be $498.

•Extend Marriage Penalty Relief. The "marriage penalty" is the additional tax paid by a husband and wife over and above what the couple would have paid if they were not married. The Democratic Budget extends marriage-penalty tax relief provisions by setting the standard deduction and 15 percent tax bracket for joint returns at twice the level as those for single returns.

 

The JCT estimates that these provisions will benefit 29.5 million
American couples with an average savings of $686 per year.

•Extend and increase the Child Tax Credit. TheDemocratic Budget provides for the extension of an enhanced child tax credit. This would extend the $1,000 tax credit for each eligible dependent child claimed on a federal tax return - an increase from the $500 credit originally available - and would end indexing of income eligibility levels to help more Americans receive the credit as a "refundable" payment. The vast majority of these families will have incomes under $75,000 per year.

 

The JCT estimates that 31.3 million Americans will benefit from the extended child tax credit with an average savings of $1,025.

 

•Extension of Increased Adoption Expenses Tax Credit.The Democratic Budget extends the $10,000 tax credit for adoptive parents for qualified adoption expenses and for the adoption of children with special needs - an increase from $5,000 ($6,000 for special needs children) tax credit originally available. 

•Extension of Child Care Tax Credit. Under the Democratic Budget,parents would continue to receive a 35 percent tax credit for child care expenses and rules increasing the amounts eligible for that child care tax credit will stay in place.

 

Standard Deduction for Property Taxpayers 

Currently, an estimated 71.8 million Americans pay property taxes. Present law allows only those who itemize deductions on their federal tax returns to deduct state and local property taxes from their income. Only 43.5 million property taxpayers do so. The Democratic Budget provided for a standard deduction - $500 for single filers and $1,000 for joint filers - for the remaining 28.3 million non-itemizers who pay property taxes, making tax relief available to all. 

This tax break was included in the Foreclosure Prevention Act of 2008 (H.R. 3221) that was approved by the Senate on April 10 by an 84-12 vote. The Foreclosure Prevention Act also includes provisions that would: 

•Increase funding for mortgage revenue bonds, which will help homeowners and buyers obtain affordable loans; 

•Provide a substantial credit to buyers of foreclosed homes that will help stabilize local housing markets and property values, and 

•Allow companies losing money - and facing employee layoffs - to write off current losses and bolster struggling operations. 

A state-by-state estimate of the number of Americans who may benefit from this deduction is included in Appendix A.

 

Tax Relief for America's Military Men and Women 

Democrats are fighting to provide tax relief for the millions of American servicemen and women and military veterans who are serving or have served our country so honorably and selflessly. Towards this end, the Democratic Budget includes the provisions of the Defenders of Freedom Tax Relief Act of 2007 (H.R. 3997), which the Senate passed late last year. These provisions: include: 

•A permanent allowance for soldiers to count their non-taxable combat pay when figuring their eligibility for the Earned Income Tax Credit, a refundable federal income tax credit that puts cash in the hands of low-income working individuals and families; 

•A tax cut for small businesses when they continue paying some salary to members of the National Guard and Reserve who are called to duty; 

•An end to cumbersome rules for the reporting of income when companies continue paying some salary to members of the National Guard and Reserve who are called to duty. This makes it easier for reservists to file their taxes and simpler for employers to keep contributing to those employees' retirement plans; 

•The ability for active duty troops to withdraw money from retirement plans, and allow up to two years to replace the funds without tax penalty; 

•Extension of a provision that gives retired veterans more time to claim a tax refund on some types of disability benefit payments; 

•Authority for the IRS to treat gifts of thanks from states to veterans - such as payments of excess state revenue - as nontaxable gifts; 

•A permanent extension of a provision that gives intelligence service employees a longer period of time to meet residency requirements necessary to exclude profits from the sale of their home from capital gains tax, which is often necessary due to frequent deployment. This provision is also extended to members of the Peace Corps; 

•Permission to exclude a soldier's basic housing allowance when income status is determined for purposes of a developer's eligibility for low-income housing credits and tax exempt bonds; 

•The ability for families of Reservists killed in the line of duty to collect life insurance and other benefits provided by the civilian employer; 

•A permanent allowance for veterans to use qualified mortgage bonds to purchase homes; 

•The ability for families of soldiers killed in the line of duty to contribute up to 100 percent of survivor benefits to retirement savings accounts or to education savings accounts; and 

•A 180-day period for Reservists called to active duty to use unspent funds in a health flexible spending account or cafeteria plan.

Appendix A

Potential Taxpayers Benefiting from Standard Property Tax Deduction
State	Owner Occupied Housing Units	Returns with Real Estate Property Taxes Paid Deduction	Tax Units that May Benefit from a New Deduction for Property Taxes Paid	Median Property Taxes Paid
Alabama	1,261,475	498,063	763,412	$302
Alaska	147,019	79,047	67,972	$2,241
Arizona	1,502,457	864,688	637,769	$1,133
Arkansas	736,825	236,686	500,139	$459
California	7,070,138	5,224,002	1,846,136	$2,278
Colorado	1,233,695	827,901	405,794	$1,297
Connecticut	919,943	700,479	219,464	$3,865
Delaware	229,860	133,441	96,419	$806
Florida	4,903,949	2,366,979	2,536,970	$1,495
Georgia	2,218,217	1,334,250	883,967	$1,050
Hawaii	256,578	160,465	96,113	$924
Idaho	379,948	197,145	182,803	$1,226
Illinois	3,277,573	1,930,765	1,346,808	$2,904
Indiana	1,759,089	817,292	941,797	$1,079
Iowa	877,796	388,095	489,701	$1,355
Kansas	744,580	355,493	389,087	$1,337
Kentucky	1,167,973	496,098	671,875	$693
Louisiana	1,136,873	250,970	885,903	$175
Maine	389,203	185,050	204,153	$1,742
Maryland	1,438,614	1,110,649	327,965	$2,159
Massachusetts	1,567,885	1,163,183	404,702	$2,974
Michigan	2,903,328	1,569,212	1,334,116	$1,846
Minnesota	1,530,659	959,556	571,103	$1,618
Mississippi	757,446	239,302	518,144	$416
Missouri	1,614,217	757,331	856,886	$1,012
Montana	254,458	124,729	129,729	$1,309
Nebraska	474,682	227,335	247,347	$1,889
Nevada	550,125	374,845	175,280	$1,445
New Hampshire	362,854	225,495	137,359	$3,920
New Jersey	2,114,072	1,662,729	451,343	$5,352
New Mexico	504,354	197,843	306,511	$707
New York	3,936,378	2,503,320	1,433,058	$3,076
North Carolina	2,325,140	1,260,312	1,064,828	$966
North Dakota	182,490	49,365	133,125	$1,326
Ohio	3,152,610	1,671,488	1,481,122	$1,598
Oklahoma	937,051	400,073	536,978	$635
Oregon	909,113	613,367	295,746	$1,910
Pennsylvania	3,474,048	1,721,496	1,752,552	$1,937
Rhode Island	254,639	177,552	77,087	$3,071
South Carolina	1,146,620	558,233	588,387	$642
South Dakota	214,246	61,182	153,064	$1,404
Tennesse	1,638,837	600,520	1,038,317	$794
Texas	5,162,604	2,184,440	2,978,164	$1,926
Utah	558,769	377,007	181,762	$1,130
Vermont	176,860	88,933	87,927	$2,835
Virginia	2,012,391	1,296,071	716,320	$1,418
Washington	1,584,549	1,009,839	574,710	$2,250
West Virginia	558,289	118,192	440,097	$389
Wisconsin	1,556,441	941,564	614,877	$2,777
Wyoming	146,504	50,121	96,383	$737

Potential Taxpayers Benefiting from

Source:Congressional Research Service calculations based on U.S. Census Bureau, American Community Survey, and Internal Revenue Service, Statistics of Income (2005). Post-2005 fluctuations n the real estate market may have resulted in changes to the potential number of beneficiaries in each state)

DPC