Problem with Obama tax cut for seniors?

A nonpartisan research group is raising questions today about one of Barack Obama's key tax proposals -- to eliminate federal income taxes for all seniors making less than $50,000 a year.

The Tax Foundation says that idea would create a "income tax cliff" that would be unfair to many people 65 and older.

The problem, Tax Foundation analyst Mark Robyn says, is shown by a case where a husband and wife who are both seniors earn a combined income of $49,500, but receive an extra $500 by selling their coin collection. Since only those making less than $50,000 are exempt, the couple might think they only owe a few cents on the $1 of income over $50,000. But instead that couple is hit with a tax bill of $3,585. Their after tax income would be $46,415, making their extra $500 in income into a net loss of over $3,000.

“The reason this happens is that Obama's plan, as stated in his official campaign publications, throws taxpayers directly into the 15% bracket as soon as they cross the $50,000 threshold, making them fully liable for income tax on all of their taxable income,” Robyn said in a statement. “In this way, the policy acts as a ‘cliff,’ suddenly slamming the taxpayer with a substantial tax bill and reducing his after-tax income well below what it would have been if his income had never increased.”

UPDATE: The Obama campaign disputes the Tax Foundation's analysis, saying that his plan does actually include a phase-out of the tax break, so that the tax bill would rise gradually above $50,000 in income and there would be no "cliff."

Economic adviser Jason Furman said while there's no specific proposal, Obama's plan includes $5 billion for the tax break, plus another $2 billion for the phase-out, which would be designed later.