President Barack Obama wants to again rely on the top-earning U.S. households for most of the tax increases he’s proposing.
Obama’s budget plan, released today, would cap tax deductions for top earners, increase the estate tax, eliminate private-equity managers’ ability to receive lightly taxed carried interest and require those earning more than $1 million a year to pay a minimum tax rate.
“The wealthiest individuals and biggest corporations cannot keep taking advantage of loopholes and deductions that most Americans don’t get,” Obama said in Washington today.
In a break from past budgets, Obama’s fiscal 2014 budget reserves most business tax increases and new business breaks for a plan that would reduce the corporate tax rate. The budget sets aside $95 billion for this purpose.
Under Obama’s budget plan, in 2023 the federal government would collect 20% of the gross domestic product as revenue, the first time it would hit that mark since 2000.
That’s compared with 16.9% this year and 19.1% projected for 2023 if Congress does nothing, according to the Congressional Budget Office. Congressional Republicans want to rewrite the U.S. tax code without adjusting overall revenue levels from the CBO projection.
Under Obama’s plan, the federal government would collect a total of $41.2 trillion over the next decade, compared with $40.2 trillion if Congress raises no additional revenue. That means the two parties are about $1 trillion -- or 2.5% -- apart.
“The president got his tax hikes in January,” House Speaker John Boehner, an Ohio Republican, said today. “We don’t need to be raising taxes on the American people.”
New tax provisions scattered through the budget join many proposals that Obama has made since 2009.
Obama endorsed a proposal from Representative Dave Camp, the Republican chairman of the House Ways and Means Committee, to impose mark-to-market taxation on derivatives. The budget says the proposal would raise $19 billion over the next decade.
By 2018, Obama proposes returning the estate tax to the parameters in place in 2009, raising $72 billion over 10 years. That plan would drop the per-person exemption to $3.5 million from $5.25 million this year and increase the top tax rate to 45% from 40%. The $3.5 million figure wouldn’t be indexed for inflation.
Obama signed a law in January that set and made permanent the current estate tax parameters. His budget plan doesn’t seek to rewrite other portions of that law, which set the threshold for the top marginal rate at $450,000, not $250,000 as he had wanted.
Obama’s renewed call for a rewrite of the corporate part of the tax code wouldn’t raise additional revenue for the government. Last year, the administration released a framework that sought to lower the corporate tax rate to 28% for most companies and 25% for manufacturers.
The budget plan doesn’t specify all of the tax breaks that would need to be eliminated or curtailed to meet those rate targets. The revenue target assumes -- as does the House Republican budget -- that tax breaks scheduled to expire at the end of 2013 would lapse as scheduled. That means extending any of them, such as the research and development tax credit, would need to be offset with savings elsewhere.
The budget plan would raise taxes for many lower-income households. Obama’s proposal to change the inflation gauge to the chained Consumer Price Index would make the standard deduction, personal exemption and tax bracket thresholds grow more slowly than projected, causing more income to be taxed at higher rates.
The change in inflation measures would yield $100 billion in tax revenue over 10 years.
Obama proposes a $78 billion increase in tobacco taxes. Other new items in the budget include a cap on an individual’s tax-preferred retirement accounts and a requirement that people who inherit individual retirement accounts take taxable distributions over five years instead of their projected life span.
The cap on retirement accounts would be implemented by prohibiting taxpayers from adding more tax-free money to the accounts once the limit is reached. The cap would be set starting at $3.4 million, the amount needed to fund a $205,000 annual annuity for a 62-year-old.
The largest single tax increase in Obama’s budget, raising $529 billion over 10 years, would set a 28% cap on the value of tax breaks such as the mortgage interest deduction, the exclusion for employer-provided health insurance and municipal bond interest.
The cap would affect anyone in a marginal tax bracket higher than 28%, which ends at $223,050 of taxable income for married couples and $183,250 of taxable income for single taxpayers.
The budget reprises the president’s proposals aimed at the $3.7 trillion state and local government bond market. It seeks to limit the tax exemption on interest income reaped by the highest-earning investors, a step local governments say would hit them with higher borrowing costs.
The plan also seeks to create new bonds, similar to the now-lapsed Build America Bonds program, to subsidize spending on public projects, including the new school buildings.
Obama renewed a proposal to create a Federal Aviation Administration air-traffic control fee of $100 per flight to help pay for airports and aviation oversight. The plan, which would apply to both commercial and private jets, has been stymied by congressional and industry opposition.
The administration is recycling a request to increase the $2.50-per-flight-segment fee, which it says covers less than 30% of aviation security costs. The budget calls for a new $5 minimum fee per one-way trip, which would increase to $7.50 in 2019. That would collect $9 billion in additional revenue over five years and $25.9 billion over 10 years, the administration said.
The $2.50 fee is projected to bring in $2.25 billion this year, compared with $5.22 billion in aviation security costs. The fee increase has been previously rejected by Congress.
The budget plan would raise about $2.5 billion for the Treasury over the next decade through increases in royalty fees on oil, gas, coal and other mineral production on federal lands, and fees meant to prod companies into producing on lands for which they hold leases, according to the Interior Department’s budget document. The U.S. received more than $9 billion in 2012 from fees, royalties and other payments related to oil and gas development on federal lands and waters.