Obama’s 10 New Taxes

POLITICO

By KELSEY SNELL, KIM DIXON and BRIAN FALER

President Barack Obama’s latest budget is his most populist ever, seeking big tax hikes to pay for ambitious new spending on education and infrastructure in a dare to Republicans to find common ground.

Here are the biggest and boldest among his tax proposals. All estimates are for revenue raised or spent over 10 years.

1. BUFFETT TAX: Reprising billionaire Warren Buffett’s gripe that he pays a lower tax rate than his secretary — because ordinary income is taxed at higher rates than capital gains — the White House wants millionaires to pay a minimum tax rate of 30 percent. The contrast between taxes on wages and investment was highlighted during the 2012 campaign, when Mitt Romney’s relatively low tax rate became an albatross for the Republican candidate. Would raise $35 billion.

2. LIMITING ITEMIZED DEDUCTIONS FOR THE WEALTHY: Obama wants to limit the value of itemized deductions used by the wealthy, such as mortgage interest, to 28 percent of their income. As it stands now, a write-off of $1,000 by a person in the top 40 percent bracket saves the taxpayer $400. Under the proposal, that same write-off would save that taxpayer just $280 because the value of the break is capped. Would raise $640 billion.

3. CAPITAL GAINS: The administration wants to hike the top rate to 28 percent from the current rate of about 25 percent with various surcharges, while expanding the number of things that would be subject to it. It would do that by cracking down on what’s known as a “stepped-up basis.”

Here’s how it works: If you were to sell stock for $1 million that you bought for $100,000, you would pay capital gains taxes on the $900,000 profit. But if you die, and your kid gets the stock, he or she would be excused from paying taxes on the $900,000. For your child, the new starting point in calculating capital gains taxes would be the $1 million, so that $900,000 would escape taxation. It’s a tax break that would mostly, though not exclusively, benefit the wealthy.

The administration’s plan would end the stepped-up basis “loophole,” though it would add various provisions aimed at shielding the nonwealthy and small businesses from having to pay the tax. Would raise $208 billion.

4. EXPAND MIDDLE- AND LOW-INCOME FAMILY TAX CREDITS: The administration’s plan would expand the child tax credit, the earned income tax credit for low-income workers and create a new $500 “second-earner credit.” The new provision is aimed at married couples, particularly those with young children, who may feel it doesn’t make economic sense for both to work. The credit would phase out with income, though couples earning up to $210,000 could claim at least a portion of the break. Other provisions would expand the EITC for childless workers and triple the credit for working families that pay for child care. Would cost $277 billion.

5. THE MITT ROMNEY LOOPHOLE: The administration’s plan would target those who accumulate giant balances in tax-preferred retirement accounts, an issue that came into the spotlight in 2012 after reports that then-Republican presidential candidate Mitt Romney had at least $21 million in an IRA while working at Bain Capital.

It would bar contributions to tax-preferred accounts once balances reach about $3.4 million, which the administration says is enough to provide $210,000 in annual income. Raises $26 billion.

6&7. TAXES ON MULTINATIONAL COMPANIES: Obama expanded his plan to revamp business taxes this year to include a new system of taxation for multinational companies with profits overseas. In addition to his previous proposal to cut the top corporate tax rate from 35 percent to 28 percent, Obama would impose a new 19 percent minimum tax on global profit going forward.

The policy shift is intended to encourage companies to bring cash back home instead of stockpiling it overseas. To kick off the transition to the new system, the administration proposes a one-time mandatory 14 percent tax on current profits sitting offshore.

Obama would use the funds from this one-time tax to pay for improvements to roads and other infrastructure.

The one-time repatriation tax would raise $268 billion. Going forward, the 19 percent rate on global profits would raise about $206 billion.

8. BANK TAX: The plan would impose a 7 basis point fee on the nation’s approximately 100 biggest banks. The administration says it would force them to think twice about borrowing heavily.

The administration says it is “broadly consistent” with an excise tax former Republican Ways and Means Chairman Dave Camp (R-Mich.) would have imposed as part of a tax reform bill last year. Camp’s plan was rejected by his fellow Republicans. Would raise $112 billion.

The administration proposes to nearly double taxes on cigarettes and small cigars to about $1.95 per pack from about $1.01 per pack, and index the tax for inflation.

9. TOBACCO TAX: The administration proposes to nearly double taxes on cigarettes and small cigars to about $1.95 per pack from about $1.01 per pack, and index the tax for inflation. The hikes would pay for two politically powerful initiatives: an extension of the Children’s Health Insurance Program — which is due to end this year if Congress doesn’t extend funding — and Obama’s ongoing proposals to guarantee universal access to preschool. Would raise $95 billion.

10. THE GINGRICH-EDWARDS LOOPHOLE: The budget would revive a proposal to prevent individuals from setting up pass-through businesses to avoid paying payroll taxes including Social Security and Medicare. The loophole got its moniker after tax returns showed former presidential candidates Newt Gingrich and John Edwards used it. Current law allows self-employed individuals like lawyers and investment bankers to recharacterize a large portion of their income as business profits rather than a salary. That cuts their taxes, since payroll taxes are currently charged only to wages, not company profits. The White House would limit that maneuver. Would raise over $74 billion.

 Read more: http://www.politico.com/story/2015/02/obama-budget-2015-10-new-taxes-114829.html#ixzz3QgTJ0vOL

KELSEY SNELL, KIM DIXON and BRIAN FALER are reporters for POLITICO where this story originally published, and is reprinted here with permission.