Democratic presidential candidate Barack Obama proposed Tuesday that the tax code be overhauled to give low- and middle-income taxpayers up to $85 billion in relief each year by shifting that burden to corporations and wealthy investors.

The Illinois senator described his plan as a step to curb Washington’s preferential treatment of the rich and powerful and reward the hard work of average Americans.

“Instead of having all of us pay our fair share, we’ve got over $1 trillion worth of loopholes in the corporate tax code,” Obama said. “This isn’t the invisible hand of the market at work. It’s the successful work of special interests.”

At a time when polls show Democrats yearning for change, Obama is portraying himself as better suited than his chief rival for the nomination, Sen. Hillary Rodham Clinton of New York, to take on powerful corporate lobbyists in Washington.


Obama pledged tax relief to 150 million workers in the form of a credit of up to $500 a person. It would offset payroll taxes on the first $8,100 of a worker’s earnings.

An Obama advisor said the tax break would phase out at incomes between $150,000 and $200,000 a year.

The senator also vowed to eliminate income taxes for retirees making less than $50,000 a year. For homeowners who do not file itemized tax returns, he proposed a tax credit averaging around $500 a year.

Obama urged that the tax code be simplified so that millions of Americans could prepare their returns in less than five minutes. He also pledged to abolish capital gains taxes for start-up businesses, a step designed to encourage innovation and spur new jobs.


His advisors were vague in identifying the sources of money to cover the tax cuts.

The senator called for increasing taxes on capital gains and dividends for those in the highest tax brackets, but aides declined to say by how much. Advisors said his plan also would close corporate tax loopholes, crack down on offshore tax havens and block hedge funds from avoiding taxes.

“We shouldn’t be distorting our tax code to benefit a few powerful interests,” Obama said in remarks to several dozen tax experts at the Tax Policy Center, a research center in Washington run by the Urban Institute and the Brookings Institution. “We should be insisting that everyone pays their fair share, and when I’m president, they will.”

As part of his agenda to expand healthcare coverage, Obama previously called for rolling back President Bush’s income-tax cuts for those making more than $250,000 a year. His healthcare plan also called for increases in dividend and capital-gains taxes; but an advisor said that would generate enough revenue to cover Obama’s new tax-break plans as well.


A Clinton spokesman declined to comment on Obama’s proposal.

Another Democratic presidential contender, former Sen. John Edwards of North Carolina, proposed a plan in July to revamp tax laws to tilt the burden away from the middle class and toward the wealthy.

In response to Obama’s plan, Edwards spokesman Eric Schultz said: “When it comes to selecting a president, specifics matter, and we look forward to seeing what tax rates Sen. Obama proposes.”

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michael.finnegan@latimes.com