Reuters misreads Obama budget plan to claim it institutes “backdoor taxes” on middle class

A February 1 Reuters article - subsequently withdrawn by the wire service -- claimed that the Obama administration's budget plan includes “backdoor tax increases that will result in a bigger tax bill for middle-class families,” citing increases to marginal federal income tax rates that would go into effect if the Bush tax cuts were allowed to expire, and an increase in middle class families that would be subject to the Alternative Minimum Tax (AMT) without the renewal of a patch to limit its impact. In fact, Obama's 2011 budget calls for the Bush tax cuts to be extended for individuals making $200,000 or less and couples making $250,000 and for the AMT patch to be extended at its 2009 parameters through 2020.

Reuters baselessly links Obama budget plan to “backdoor taxes to hit middle-class” based on non-renewal of Bush tax cuts and AMT patch

Reuters: Under Obama budget plan, “middle-class families” will face “backdoor [tax] increases.” From the February 1 Reuters article:

The Obama administration's plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.

In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year -- effectively a tax hike by stealth.

While the administration is focusing its proposal on eliminating tax breaks for individuals who earn $250,000 a year or more, middle-class families will face a slew of these backdoor increases.

As evidence, Reuters cites middle class tax increases if Bush tax cuts allowed to expire. From the article:

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

Reuters also cites “millions of middle-class households” facing higher taxes if patch to limit the impact of AMT not renewed. The article notes that if the patch that limited the impact of the alternative minimum tax is not renewed, “the tax will hit American families” with “incomes as low as $33,750”:

Without annual legislation to renew the patch this year, the AMT could affect an estimated 25 million taxpayers with incomes as low as $33,750 (or $45,000 for joint filers). Even if the patch is extended to last year's levels, the tax will hit American families that can hardly be considered wealthy -- the AMT exemption for 2009 was $46,700 for singles and $70,950 for married couples filing jointly.

Reuters article has been withdrawn. On February 2, Reuters replaced the article with following advisory: “The story Backdoor taxes to hit middle class has been withdrawn. A replacement story will run later in the week.”

Drudge promoted Reuters article. Internet gossip Matt Drudge promoted the Reuters article on his Drudge Report website on February 2. Later that day, he updated his site to note that Reuters had “pull[ed]” the story.

But Obama budget proposal calls for extension of Bush tax cuts for middle class and AMT patch renewed through 2020

Budget proposal extends Bush tax cuts for “98 percent of all households.” The budget proposal states that “the President supports allowing those tax cuts that affect families earning more than $250,000 a year to expire and committing these resources to reducing the deficit instead. This step will have no effect on the 98 percent of all households who make less than $250,000.” The budget includes $135 billion in fiscal 2011 and $3.097 trillion form 2011-2020 to “Continue the 2001 and 2003 tax cuts,” but lists several “Upper-Income Tax Provisions” that would roll back the Bush tax cuts for individuals with income greater than $200,000 and families with income greater than $250,000:

AMT patch will be renewed through 2020 under Obama budget proposal. In its budget plan, the Administration called for the extension of the AMT patch at its 2009 parameters through 2020:

Article uses Luntz-approved “death tax” interchangeably with “estate tax”

From the article:

Investors will pay more on their earnings next year as well, with the tax on dividends jumping to 39.6 percent from 15 percent and the capital-gains tax increasing to 20 percent from 15 percent. The estate tax is eliminated this year, but it will return in 2011 -- though there has been talk about reinstating the death tax sooner.

“Death tax” a GOP-promoted term. “Death tax” is a term popularized by supporters of the repeal of the tax and which GOP pollster Frank Luntz reportedly found polls better than the terms “estate tax” and “inheritance tax.”