President Obama’s $3.9 trillion budget proposal for 2015 includes
more generous tax breaks for working families while scaling back breaks for the
rich. The budget offers a look at the president's fiscal policy vision for the
country and drew instant condemnation from Republicans.
The White House Budget Office estimates that Obama's proposal
overall would cut the annual deficit by 2024 to 1.6% of the size of the
economy, less than half of where it's projected to be that year under current
policies by the Congressional Budget Office.
But a key part of his budget is a series of tax changes designed
to give a hand to low- and middle-income workers. To pay for those
changes and to help reduce deficits, Obama, as he done repeatedly throughout
his presidency, proposes to raise the tax burden on the rich. And many of his
proposals are recycled from previous budgets.
Republicans objected to the plan's spending
increases and said it did not address larger fiscal challenges related to the
Social Security retirement program and Medicare and Medicaid healthcare for the
elderly, poor and disabled.
Fair Share Tax: Obama wants Congress to implement the
so-called Buffett
Rule, which would require
people making over $1 million to pay at least 30% of their income, after
charitable contributions, in federal taxes. The White House estimates this could
raise $53 billion over a decade and would be earmarked for deficit reduction.
Cap itemized deductions for high-income households: Obama wants to limit the value
of itemized deductions, as well certain tax exclusions, to 28% of the amount
claimed.
Here's how it could work: Say that someone in the 33% tax
bracket saves $10,000 in his 401(k). Under current law, that contribution would
effectively reduce his annual tax bill by $3,300 (33% x $10,000). Under the
president's proposal, it would only do so by $2,800 (28% x $10,000).
This proposal is by far the largest revenue raiser in Obama's
budget. The White House Budget Office estimates it could raise close to $600
billion over a decade, and like the Buffett Rule, would be intended for deficit
reduction.
Limit savers' combined balance across tax-preferred accounts: The president wants to prohibit contributions to
tax-advantaged retirement accounts once a person's combined balance exceeds a certain level.
Such accounts include IRAs and 401(k)s. Republicans blasted this as being
punitive for investors who start early and are “too successful” in investing
their savings.
The cap on the combined balance would be based on a saver's age
and would vary over time based on factors such as inflation and interest rates.
Last year, for instance, the cap would have been $3.4 million for someone who
was 62, but just $1 million for someone who was 40, according to a Tax Policy
Center report.
The White House estimates this limitation would raise $28
billion, which would pay for half of his proposed growth and investment
package.
Raise the estate tax: The president wants restore the 2009 estate tax exemption levels
and estate tax rate. The net effect: He would lower the amount of money treated
as tax exempt to $3.5 million a person from more than $5 million today. And he
would raise the tax rate on the taxable portion of estates to 45% from 40% currently.
The proposal is estimated to raise $118 billion over 10 years,
and again would be put toward deficit reduction.
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