*from www.bloomberg.com, April 11, 2013 (To view original article click here.)
Take Away #1: President Barack Obama and congressional Republicans are $1 trillion and a conceptual leap apart on taxes, a policy gap accentuated by the administration’s 2014 budget.
Key Facts and Figures:
- Obama yesterday proposed higher taxes for top earners, estates, private-equity managers and tobacco users, wrapped inside a call for “reforming our tax code.”
- Republicans instantly rejected any tax increase as unacceptable.
- The bipartisan consensus on lowering the corporate tax rate and curtailing some breaks only goes so far.
- “I don’t know that the cause of tax reform has been advanced any by the budget,” said Dave Kautter, of the Kogod Tax Center.
- Obama’s budget plan adds few details to a year-old framework.
Take Away #2: Meanwhile, the issue of how to tax businesses that pay through their owners’ individual returns still bedevils policy makers.
Key Facts and Figures:
- For the first time, Obama set aside some business tax increases to pay for a future corporate rate cut and in the process showed how difficult the effort would be.
- The $95 billion reserve is funded largely with tax increases on U.S. companies’ foreign earnings.
- The reserve would cover a rate of reduction of about 1 percentage point, not the 7 points sought by Obama or the 10 favored by House Republicans.
Take Away #3: Obama included in his budget a version of a proposal from Rep. Dave Camp, chairman of the House Ways and Means Committee, that would impose a mark-to-market taxation regime on derivatives and raise $19 billion.
Key Facts and Figures:
- Last years framework suggested other ways to raise money, such as limits on accelerated depreciation and the deductibility of interest.
- Setting aside some base-broadening provisions for a future rate cut and not specifying others may help advance the debate in Congress.
- Even a revenue-neutral corporate change would be “very difficult” to get through Congress, said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities.
- “People are very loss averse and lobbyists are even more loss averse,” he said.
Take Away #4: Obama and Camp part ways on taxing individuals.
Key Facts and Figures:
- The biggest tax increase in Obama’s budget would raise $529 billion over 10 years.
- This would be achieved by capping the value of tax breaks such as mortgage interest deduction and exclusion of municipal bond interest at 28%.
- That means someone in the top bracket with a 39.6% rate who had $10,000 in charitable contributions could get a $2,800 deduction, instead of $3,960 currently.
- The cap would affect married couples with taxable incomes of more than $223,050 a year and individuals with taxable incomes exceeding $183,250.
Take Away #5: Even as he applauded Obama for “stepping forward” on tax changes, Camp said a rewrite of the tax system should address both businesses and individuals.
Key Facts and Figures:
- Obama’s plan would tax the carried interest of private equity managers at ordinary income rates and impose a minimum tax on people with incomes of more than $1 million a year.
- He would raise the estate tax to 45% from 40% in 2018 while lowering the per-person exemption to $3.5 million from $5.25 million.
- “If you’re serious about deficit reduction, then there’s no excuse to keep these loopholes open,” Obama said.
- “They don’t serve an economic purpose. They Don’t grow our economy. They don’t put people back to work,” Obama said.
- “While looking to help corporate America, the president’s plan does not address how complex, costly and unfair the tax code is for American families and small businesses,” said Camp.
Take Away #6: Camp, a Michigan Republican, says he will pas a tax rewrite in his committee this year.
Key Facts and Figures:
- Camp is working with Senate Finance Chairman Max Baucus of Montana, one of four Democrats to vote against his own party’s tax-raising budget.
- Baucus has said he wants to reserve the questions of how much revenue to raise for later.
Take Away #7: The president’s tax proposals drew criticism from business groups and advocates for charitable groups who were primed to oppose the provisions Obama recycled from previous budgets.
Key Facts and Figures:
- Camp is working with Senate Finance Chairman Max Baucus of Montana, one of four Democrats to vote against his own party’s tax-raising budget.
- Baucus has said he wants to reserve the questions of how much revenue to raise for later.
- The Retail Industry Leaders Association said the plan “falls short of the bold reforms needed.”
- The Business Roundtable, a group of chief executives that backs Obama’s corporate tax strategy, said it was “encouraged” by some parts of the tax plan and found others “not helpful.”
- Oil and gas companies would lose at least $41 billion in tax breaks over the next decade.
- “We as an industry support comprehensive tax reform that looks at all industries and all issues at the same time, brings them all to the table,” said Stephen Comstock, of the American Petroleum Institute.
- “To us, if there was a real proposal out there to address this, we’d be happy to discuss it. But we don’t see this as a real proposal,” said Comstock.
Take Away #8: Under Obama’s budget plan, in 2023 the federal government would collect 20% of the GDP as revenue, the first time it would hit that mark since 2000.
Key Facts and Figures:
- That is compared with 16.9% this year and 19.1% projected for 2023 in 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.
- In 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.
- This puts the two parties about $1 trillion, or 2.5%, apart.
- 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.
Take Away #9: The budget plan doesn’t specify all of the tax breaks that would need to be eliminated or curtailed to meet those rate targets.
Key Facts and Figures:
- The revenue target assumes that the tax breaks scheduled to expire at the end of 2013 would lapse as scheduled, as does the House Republican budget.
- Unlike last year, the budget doesn’t call for continuing most of the expiring provisions.
- Those should either be made permanent or eliminated, said a Treasury official who briefed reporters on condition of anonymity.
- The budget extends tax breaks the administration sees as the most important, such as the research credit and the production tax credit for renewable energy.
Take Away #10: While Obama previously has pledged to prevent tax increases for married couples making less than $250,000, his budget plan would allow taxes to rise for many lower-income households.
Key Facts and Figures:
- Obama’s plan is to change the inflation gauge to the chained Consumer Price Index.
- That 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.
- The portion of the change affecting tax policy doesn’t include any provisions to soften the tax increase on lower-income households that would get a smaller standard deduction or earned income tax credit.
- Obama proposes a $78 billion increase in tobacco taxes.
- Other new items in the budget include a cap on individuals’ tax- preferred retirement accounts and a requirement that those who inherit IRAs take taxable distributions over five years instead of their projected life span.
*To view original article from www.bloomberg.com click here.