President Barack Obama also proposed requiring millionaires to pay a minimum tax rate of 30 percent.
President Barack Obama is no longer pressing to raise income tax
rates on the rich. But that does not mean he thinks the wealthy are
paying enough in taxes.
Outlining his budget proposals to Congress on Wednesday, Mr.
Obama pushed to raise more than $600 billion in new revenue, mainly
by curbing deductions for the most affluent taxpayers and requiring
millionaires to pay a minimum rate of 30 percent. Under the White
House plan, deductions for tax breaks like mortgage interest and
contributions to charities would be capped at a maximum rate of 28
percent. The caps would limit the value of the breaks to the top 3
percent of taxpayers who face higher marginal tax rates and generate
about $529 billion in additional revenue over 10 years.
Many of the budget proposals, including the limit on deductions,
have been made before by the Obama administration. Analysts said
that Congress was unlikely to adopt them in isolation but that some
Republicans might be open to a broader deal that included measures
to close various loopholes in the tax code.
Chuck Marr, director of federal tax policy at the Center on
Budget and Policy Priorities, a research institute, said the main
part of the tax proposal -- curbing tax deductions for high earners -
- could form part of a future deal because they were close to what
Republicans have themselves proposed in the past. "In any agreement
that finally comes together, this will be the core revenue piece of
it," he said.
At the same time, the administration formally proposed the so-
called Buffett rule, which would impose a new minimum 30 percent tax
rate on households earning incomes of more than $1 million. It said
that could generate an additional $53 billion in revenue over a
decade. It is named after Warren E. Buffett, the billionaire
investor, who said in an Op-Ed article in The New York Times that he
was paying a lower tax percentage than workers in his office.
"This proposal will prevent high-income households from using tax
preferences, including low tax rates on capital gains and dividends,
to reduce their total tax bills to less than what many middle-class
families pay," according to the White House.
Roberton Williams, senior fellow at the Tax Policy Center in
Washington, said the rule's inclusion in the budget proposal was an
indication that the Obama administration was determined "to make
sure that the rich people pay something."
Tax rates for high earners were increased this year for the first
time in two decades as part of the post-election deal to avoid the
"fiscal cliff" -- a package of tax increases and spending cuts that
had been set to take effect at the beginning of the year -- and to
help pay for the cost of expanded health care coverage.
Despite those increases, the effective tax burden for the very
wealthy remained considerably lower than in past decades, according
to Emmanuel Saez, professor of economics at the University of
California, Berkeley. He estimated the recent tax increases could
take the total average U.S. tax rate of the top 0.1 percent of
earners to about 40 percent, compared with about 51 percent in 1981.
The total tax take from that group had fallen to about 33 percent
after the tax cuts enacted under President George W. Bush.
In its proposal, the Obama administration also proposed a $3
million limit on tax-deferred individual retirement accounts --
another tax measure aimed at wealthy individuals who have been
accused of using the accounts to shelter large amounts of money,
rather than for simple savings.
The White House also proposed, as it has in the past, ending the
preferential treatment of private equity and hedge fund profits,
known as carried interest. Those profits are currently taxed as a
long-term capital gain.
The treatment of carried interest has for years been strongly
defended by elements of the financial industry, and the White House
proposal was quickly attacked Wednesday by the leading private
equity trade group. Even supporters of the proposal conceded that it
faced stiff political opposition.
"Republicans are never going to sign off on this," said Andrew
Fieldhouse, an analyst at the Economic Policy Institute, a research
institute.
While most of the proposed tax increases were aimed at higher
earners, there were important proposals that would affect all
individuals.
The administration proposed higher taxes on tobacco products to
pay for early childhood education, raising about $78 billion over a
decade.
Its plan for a new cost-of-living formula to reduce future Social
Security benefits would also involve indexing income tax brackets to
a different measure of inflation. That would effectively increase
the money raised by the income tax across the board over the next
decade, affecting "people throughout the income distribution," said
Donald Marron, director of the Tax Policy Center.
Mr. Obama said he was still committed to lowering the U.S.
corporate tax rate from 35 percent. But he also wanted to close tax
loopholes that allow many companies to pay a much lower effective
corporate tax rate.
In the budget, he proposed eliminating special tax privileges for
the oil, natural gas and coal industries to save a further $44
billion over 10 years, increased taxation of foreign earnings and
special rules for corporate jets.
The Business Roundtable, a lobbying group that represents major
corporations, said it welcomed any cut in corporate taxes but wanted
the reductions to be part of broader changes, and it objected to
measures that aimed at particular industries.
"Singling out certain industries for taxation is bad tax policy,"
the group said in a statement.
