For Orthodox Jews, President Barack Obama’s proposed tax reforms present a numbers-crunching paradox: Income he designates as well-off may mean just getting by for large families.
Obama’s 2015 budget, which was introduced Monday, aims to offset economic breaks to upper-income families to help working- and middle-class Americans, a key goal of his State of the Union address. The reforms would fund most tax breaks and social services by increasing taxes on those in the higher brackets..
For Orthodox Jews, the largest growing segment of Judaism according to a 2013 Pew Research Center study of American Jewry, such reliance on households making more than $100,000 per year can strain finances already challenged by day school tuitions and the burdens of feeding larger-than-average families.
The Pew report showed that despite their relatively small population — making up only 10 percent of the Jewish population in the United States — families that consider themselves Modern Orthodox reported higher incomes than others in the Jewish community, with 37 percent having household incomes of more than $150,000. The finding surprised Nathan Diament, executive director of the advocacy branch of the Orthodox Union that represents Orthodox Jews on the state and federal policy matters.
“I would have thought that [average household incomes for] the Reform Jewish community or the Conservative community would have been higher,” he said.
Based on anecdotal evidence, Diament attributed the trend to Orthodox parents being “driven to higher paying professions, because they know that they want to pay for day school education for the three, four or five children that they’re having.”
Even assuming above-average incomes for Orthodox families, the costs involved in having a large family and providing all of their children with private Jewish educations often drives them into a middle- or lower-class lifestyle. The current tax system caps childcare benefits and per- child tax deductions for all income levels, reducing benefits as family income increases.
“That’s a huge challenge and it’s very much the case that if you are in the Modern Orthodox community and you’re making $200,000 or even $300,000 a year, you’re struggling,” said Diament. “That’s very difficult to say and we’re aware that it’s much higher than the average income in the United States, but if you’re paying tuitions of $20,000 to $30,000 a year per child and you have four or five children, it’s very, very challenging.
“It’s already the case that those tuition dollars are not accounted for in a tax-favored sort of way,” he continued, “and it is [also] the case that many tax breaks are phased out” at the $100,000 level.
According to the president, the new budget aims to reduce the gap between lower- and middle class Americans and the upper class by tripling the per-child tax incentive and providing a $500 tax break to dual income earners among other tax incentives ranging from childcare to retirement.
Roberton Williams, Sol Price fellow at the Urban-Brookings Tax Policy Center, explained where the budget falls short.
“I think it’s a more general question of what does income represent in terms of lifestyle,” said Williams. “In New York City, $200,000 doesn’t buy you nearly as much as it does in Indiana.”
According to Williams, the government rarely factors lifestyle choices, such as how many children a family wants to have or whether they send their children to private school, into its bracket calculations.
“We all make lots of decisions about what we do with our personal lives,” said Williams. “In general, the tax code does not take account of a lot of those [issues]. So people who choose to have lots of kids, it’s a private choice.
“While the tax system recognizes that to some degree, it certainly doesn’t say ‘We’re going to adjust your taxes based on your personal choices of how you spend your money,’” he added. “Some things they allow, some things they don’t.”
Despite the president’s increased childcare credit, which applies fully to children under the age of 5 and is then significantly reduced until largely disappearing once a child turns 13, there is a cap on the total amount of child credits the family can claim.
In the current tax code, families can claim $3,000 per child up to a total cap of $6,000. Thus, each additional child after the second, does not receive tax credit.
Jason Fichtner, senior research fellow at the Mercatus Center at George Mason University, agreed with Williams’ assessment.
“The American public has a much different view of what is middle-class than an economist or a statistician might,” Fichtner said via email. “Middle usually describes an average or a median to someone familiar with statistics. But when it comes to income and American culture, the ‘middle-class’ is very wide and includes professionals making $30,000 a year all the way up to families with combined incomes of $400,000.”
To pay for its reforms, Obama’s plan would raise the capital gains tax to 28 percent for revenue greater than $200,000; increase fees on large financial institutions; and close the “trust fund” loophole that lets individuals pass on tax-free assets to their heirs.
“By ensuring those at the top pay their fair share in taxes, the president’s plan responsibly pays for investments we need to help middle class families get ahead,” a White House fact sheet released shortly before the complete budget explained.
As expected, the president’s offsets have reignited “class-warfare” accusations from Republicans.
“Obama’s tax policies and tax proposals have been consistently bad for the American people,” said Mark McNulty, communications director for the Republican Jewish Coalition. “Redistribution is never a good thing. What we want to do is raise all boats and create prosperity for everybody, and I don’t think Obama’s policies do any of that.”
One Jewish group praising Obama’s budget is the Religious Action Center (RAC) of Reform Judaism, the movement’s advocacy arm in Washington.
“We were very positively inclined to the elements of President Obama’s tax proposals that would lift up the poor,” said newly appointed director Rabbi Jonah Pesner, noting that his organization aims to apply Jewish values to benefit American society as a whole, rather than advocating for any particular Jewish group.
“Our core work is about that Deuteronomic vision of the widow, the orphan and the stranger and those tax policies that will actually measurably impact and improve the lives of poor people, and frankly, that would generate economic activity that would improve the wider landscape for all Americans.”