Now that the country’s foremost tax geeks have had some time to digest President Obama’s proposed tax reform, some of the current administration’s claims have begun to spring leaks.
For a reminder of the president’s proposals, click here: 2012 Presidential Candidates – The Tax Proposals
An analysis of the president’s budget performed by the Tax Policy Center — an insanely meticulous Washington research group that does this sort of thing for a living — revealed that despite the administration’s promise to raise taxes only on those earning more than $250,000, 27.3% of all taxpayers will see their tax bill increase in 2013 under the proposed reform when compared with a “current policy[i]” baseline, including 51% of taxpayers earning between $100,000 and $200,000.
To be fair, the group targeted by the president to bear the burden of his tax increases — those earning more than $1,000,000 — will experience an increase in their 2013 tax bill by an average of $179,118, while those earning between $100,000 and $200,000 will only see their tax climb by an average of $58. But even with that, these results stand in stark contrast with many of the promises made by the current administration. Click to enlarge the Tax Policy Center’s illustrative table:
What gives rise to the disconnect?
It appears the Obama administration compares the results of its proposed tax reform to a “current law” baseline, which assumes that the Bush tax cuts expire for all taxpayers and no “patch” is provided to index the AMT exemption for inflation. Under this scenario, only 6.5% of all taxpayers would see their tax bill increase in 2013, with only 0.7% of those taxpayers earning between $100,000 and $200,000 experiencing a rise in tax liability. Again, click to enlarge:
The problem with such an analysis, unfortunately, is a little thing called reality. Few believe that under any scenario, the Bush tax cuts would be allowed to expire for all taxpayers, making the “current law” baseline a highly implausible one.
Going back to the more realistic “current policy” baseline, a natural question arises as to how much of the middle class can experience a tax increase if President Obama is primarily proposing to raise the top two tax brackets, leaving the others unchanged. The answer, according to the Tax Policy Center, is found in the president’s corporate proposals, as taxpayers at all income levels own corporate stock. As Roberton Williams, a senior fellow at the Tax Policy Center explained to Bloomberg News, “There are enough corporate tax increases in the president’s plan to have a measurable impact on the distribution.”
The Tax Policy Center’s analysis wasn’t the only recent bit of bad news for the current administration, however. The Joint Committee on Taxation released an estimate that the president’s proposed “Buffet Rule”– which would require taxpayers earning more than $1,000,000 to pay a minimum 30% tax rate — would raise a mere $47 billion in tax revenue over the next decade, an amount which would cover only half the cost of the recent 10-month extension of the 2% payroll tax cut.
“The president’s so-called Buffett rule is a dog that just won’t hunt,” Senator Orrin Hatch of Utah, the top Republican on the Finance Committee, said in a statement, adding that the proposal would have little effect on reducing the federal budget deficit. “It was designed for no other reason than politics.
There is no economic rationale for it.”
It should be interesting to see if the president modifies his proposals in light of these pieces of analysis, or whether he dismisses them as conjecture.
[i] “Current policy” assumes that the Bush tax cuts will be extended, the AMT exemption is indexed for inflation, and the estate tax applies at its 2012 levels.