Election day has come and gone and the new face of our country is Senator Barack Obama.  Most people have come to associate the word "Change" with Senator Obama and he has not disappointed with his proposed comprehensive tax plan. At the core of Senator Obama's tax policy is middle class tax relief, which will cut taxes for 95 percent of workers and their families.   

Let's take a look at some of these changes and discuss what they mean for you, the taxpayer, going forward. One way that Senator Obama plans to cut taxes for middle class families is to include a $1,000 "Making Work Pay" tax credit.  If your income is under $250,000 and both spouses work, you will be eligible to receive this $1,000 tax credit.  He has also proposed to eliminate income tax for seniors earning less than $50,000.  This will eliminate seven million senior taxpayers from having to pay any income tax and it will also mean that 27 million seniors will not have to file federal income tax returns.

Senator Obama is also proposing tax cuts to encourage more middle class Americans to save for retirement.  This will be accomplished by expanding the saver's credit to match 50% of the first $1,000 of savings for families that earn under $75,000 and automatically depositing the match into designated personal accounts by using account information listed on IRS tax filings.  Some of his other policies to encourage retirement saving include requiring employers without retirement plans to enroll employees in direct-deposit IRA accounts and for those employers that already have plans in place, to provide automatic enrollment.   Something else to keep an eye on for senior citizens is Senator Obama's plan to instruct the treasury to suspend required minimum withdrawals for IRA owners over age 70 1/2.

It is well known that Senator Obama is a big supporter of higher education so it seems fitting that he would include an educational tax break in his tax plan.  He is proposing a $4,000 educational tax credit on qualified tuition expenses to help make college more affordable for all American families.  Another tax break that Senator Obama is supporting is a 10% refundable mortgage interest credit to help make home ownership more affordable for low and middle income families who do not itemize on their tax returns.

This all sounds good, but you might be asking yourself how Senator Obama plans to pay for all of these tax cuts?  Unfortunately, if you currently earn more than $250,000, you are going to see a significant increase in your federal tax liability.  The top two income tax brackets are going to return to their 1990's level of 36% and 39.6%, respectively.  Senator Obama is also proposing that a new capital gains and qualified dividends rate of 20% be applied to taxpayers earning more than $250,000.  Another proposed change on the horizon could see higher income families having an increased payroll tax liability.  The senator has said that he would like to raise the payroll tax liability anywhere from two to four percent on both the employee and employer for high income individuals.

Some of the other strategies Senator Obama has discussed to help fund the tax cuts for middle class Americans include reforming international tax loopholes that give American companies incentives to ship jobs overseas and cracking down on international tax havens.  Studies have shown that off-shore tax abuse costs this nation around $100 billion a year.  Another area that Senator Obama has specifically mentioned is increased scrutiny on capital gains reported by individuals on their tax returns. 

While none of the tax proposals discussed above are current tax law, there is a good possibility that we will see most of these changes within the next year.  Not all the details have been worked out with all the proposed changes, but it would be safe to say that many of us will see some tax relief in the future and a few of us will see a tax increase.