President Obama has put it back into Congress's court in the 2013 budget he proposed today.
In the 2013 budget, the President challenged Congress to join him in stimulating job creation for the near term, while reducing the deficit over the long run. For most households earning less than $250,000, this should go some distance in alleviating their tax burden, while making wealthier households pay “their fair share.”
President Obama explained his thinking in an address to students at Northern Virginia Community College. “We’ve got to renew the American values of fair play and shared responsibility,” he told those gathered. He went on to explain specific items within the budget, including the following:
• Tax cuts for wealthier Americans that were legislated under former President George Bush, would be allowed to expire by the end of the 2013 year
• Certain corporate tax breaks would be eliminated
• Discretionary spending on a range of categories from pollution control to education and the military would be slashed
• Mandatory spending would be cut, including features of the Medicaid and Medicare budgets.
The budget contains some highly popular measures, including the so-called Buffett rule. One consequence of Warren Buffett’s recent highly publicized remarks have fed into populist demands—now codified in President Obama’s budget--that the highest earners (like Warren Buffet and similar tycoons) pay a minimum tax. This would hold true regardless of the structure of their holdings and investments. Specifically, any U.S. household with 1 million dollars or more of income, will have to pay a minimum of 30 per cent tax.
The White House budget projects a deficit of $901 billion in 2013, which correlates to 5.5 per cent of GDP. This figure is down from the projected deficit of 2012, which was $1.33 trillion. Going forward, the projected budget through 2018 hews closely to the goal of closing the deficit, and in their crystal ball, policy-makers have set 2.7 per cent as the target deficit for 2018.
Looking at it cumulatively, Obama’s proposed budget would reduce total deficits $1.1 trillion over 10 years.
Obama’s budget also called for significantly higher taxes on dividends, which will certainly raise the hair on the back of investors, not to mention bring on the ire of corporations that pay dividends.
The capital gains tax would also jump up. While the current ceiling is 15 per cent for all taxpayers, if the proposed budget goes through as written, this would rise to 20 per cent for wealthy households.
Presumably, the rationale behind these rate increases is that regulation should be investment-neutral across different investment options. In other words, setting the top capital gains and dividend tax rates at 20 per cent “reduces the tax bias against equity investment and promotes a more efficient allocation of capital.”
Furthermore, households that earned over $250,000 a year would have to pay up to a maximum of 40 per cent tax in 2013, which stands in contrast to the current maximum income tax rate of 35 per cent.
The proposed budget dovetails nicely with Obama’s election-year aim to assuage angry voters, but in fact, pundits predict that the budget as written has little chance to pass, without significant alteration.
Reference: The Budget Documents from the White House Office of Management
Image source of president Barack Obama: The White House
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