Earlier today, President Obama unveiled his 2013 budget request to Congress, which forecasts a deficit of $1.4 trillion in 2012 and $900 billion in 2013. While we’ll leave the fiscal analysis to the requisite eggheads, let’s take a closer look at the president’s much-anticipated tax proposals:
The report contained no big surprises, with the overall plan for tax reform posited by the president largely matching what we predicted on Saturday. What the budget did offer, however, was a bit more in the way of quantitative specifics, with the president indicating that his tax proposals would cut the deficit by $1.5 trillion over the next decade. The additional revenue is comprised of the following:
- Allowing the Bush tax cuts to expire for taxpayers with adjusted gross income (AGI) greater than $250,000 ($200,000 if single) — returning the nation’s wealthiest taxpayers to a maximum rate of 39.6% — while allowing the estate tax to return to its 2009 parameters: a 45% tax rate and $3.5 million exemption. Total deficit reduction: $968 billion over 10 years.
- Capping the tax benefit of certain items of income and deduction at 28% for taxpayers with AGI greater than $250,000. The benefits identified include all itemized deductions, foreign excluded income, tax-exempt interest, employer sponsored health insurance and retirement contributions, and certain unspecified above-the-line deductions. Total deficit reduction: $584 billion over 10 years.
- Elimination of the tax preference currently afforded to “carried interest.” Fund managers who receive a profits interest in exchange for providing management services will be taxed on all future allocations of income as compensation for services taxed at ordinary income rates, rather than preferential long-term capital gains tax rates, as is largely the case now. Total deficit reduction: $14 billion over 10 years.
- Corporate jets will now be depreciable over 7, rather than 5 years. Total deficit reduction: $2 billion over 10 years.
- Elimination of certain oil and gas tax preferences. Total deficit reduction: $41 billion over 10 years.
And there’s your $1.5 trillion in additional tax revenue. Of particular note among these proposals was President Obama’s decision to allow the maximum rate on qualified dividends return to 39.6%. The president had previously intimated a desire to keep these rates at a preferential rate, even for the nation’s wealthiest taxpayers.
And lest you think he forgot, the president did stick to his guns and ask Congress to pass the “Buffet Rule,” requiring taxpayers with AGI greater than $1,000,000 to pay tax at a minimum 30% effective rate. While no detail is provided as to how the rule would be implemented, the president does make clear that it would replace the current AMT. So there’s that.
With regards to corporate tax reform, President Obama chose to keep things vague, asking Congress to simplify the corporate tax provisions of the code while also closing loopholes, lowering the corporate tax rate, encouraging investment in the U.S., and to do it all without adding a dime to the deficit. And while they’re at it, if they could also go ahead and figure out who killed Jon Benet Ramsey and put an end to the Mark Sanchez – Santonio Holmes feud, that would be just dandy.
With the release of the budget, we can go ahead and finalize our previous chart, so that it now details the tax proposals of — with apologies to Rick Santorum — the three leading candidates to be the next president of the U.S. And while personal values will likely dictate the “best” plan for each taxpayer, I will say this: as a tax professional, President Obama’s proposal certainly appears to be the most unwieldy, particularly the 28% limitation on certain deductions and the implementation of the Buffet Rule. If they weren’t already, Ive got to believe the people who design tax preparation software for a livign are starting to strongly lean Republican.