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For Orthodox, tax-defined ‘upper’ incomes are often stretched

WASHINGTON (Washington Jewish Week via JTA) – 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 fastest growing segment of Judaism according to a 2013 Pew Research Center study of American Jewry, higher taxes for 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.

Nathan Diament, who directs the advocacy branch of the Orthodox Union on state and federal policy matters, 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.”

Costs involved in having a large family and providing all of their children with private Jewish educations often drive Orthodox Jews into a middle- or working-class lifestyle. The current tax system caps child care 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,” Diament said. “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 added, “and it is [also] the case that many tax breaks are phased out” at the $100,000 level.

Obama’s budget aims to reduce the gap between working- and middle-class Americans and the higher-income families by tripling the per-child tax incentive and providing a $500 tax break to dual-income earners among other tax incentives ranging from child care to retirement.

To pay for its reforms, Obama’s plan would raise the capital gains tax to 28 percent for revenue greater than $200,000 a year; 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.

Roberton Williams, the Sol Price fellow at the Urban-Brookings Tax Policy Center, said Obama’s approach fails to take into account lifestyle and regional discrepancies.

“I think it’s a more general question of what does income represent in terms of lifestyle,” Williams said, noting that “$200,000 in New York City doesn’t buy you nearly as much as it does in Indiana.”

Williams said 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,” he said. “In general, the tax code does not take into account of a lot of those [issues]. So people who choose to have lots of kids, it’s a private choice.

Despite the president’s increased child care credit, which applies fully to children younger than 5 and then is reduced significantly until largely disappearing once a child turns 13, there is a cap on the total amount of child credits a family can claim.

In the current tax code, families can claim $3,000 per child up to a total cap of $6,000. Each additional child after the second does not receive tax credit.

Jason Fichtner, a senior research fellow at the Mercatus Center at George Mason University, said the economic and cultural definitions of the term “middle class” differed significantly.

“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.”

Presidential budgets, submitted for the approval of Congress, rarely survive intact, especially when the opposing party controls both chambers like the Republicans do now.

Mark McNulty, communications director for the Republican Jewish Coalition, said that what Republicans are calling class-driven tax policies are “bad for the American people.”

“Redistribution is never a good thing,” he said. “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.”

Rabbi Jonah Pesner, the new director of the Reform movement’s Religious Action Center, said a degree of redistribution made Jewish sense.

“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,” he said.