In the United States, when the President submits his (and some day, her) budget to Congress, the focus often is on spending. The budget allows the President to outline the Administration's priorities, deciding how much to allocate to, say, defense or social programs. Still, contained in the budget President Obama submitted to Congress earlier this week were a number of provisions geared to the revenue, or tax, side of the equation.
For starters, the President's budget message outlined his belief that those who earn more should pay a higher rate of taxes. "It is wrong for Warren Buffett's secretary to pay a higher tax rate than Warren Buffett. This is not about class warfare; this is about the Nation's welfare." With this in mind, the President stated his intention to push for the expiration of tax cuts for families making more than $250,000 a year, as well as to more generous estate tax provisions than were in place in 2009. "These policies were unfair and unaffordable when they were passed, and they remain so today," he said.
Several of the President's tax proposals would more directly impact business taxes. Among the fees and tax provisions contained in the budget:
- Implement what the President calls a "Financial Crisis Responsibility Fee." This would be assessed on financial institutions with more than $50 billion in assets, and "would compensate taxpayers for the extraordinary support they provided to the financial sector" during the financial crisis. The fee would be structured along the lines of similar fees proposed in other countries.
- Eliminate tax breaks for oil and gas companies, as well as preferred tax treatment for the purchase of corporate jets.
- Increase the Aviation Passenger Security Fee. Right now, the fee generally is capped at $2.50 per passenger enplanement. This recovers less than half the actual cost of aviation security, according to the budget. The President would raise the fee to $5.00, and increase it by $.50 per year from 2014 to 2018.
- Reform the individual tax code so that those making more than $1 million pay no less than 30 percent of their income in taxes – the so-called Buffett rule, again, after Warren Buffett. This would replace the Alternative Minimum Tax, "which now burdens middle-class Americans rather than stopping the richest Americans from paying too little, as was originally intended," the budget states.
- Tax carried interest (the share of any profits that general partners of private equity and hedge funds receive as compensation) as ordinary income. Rather than pay a 15 percent capital gains rate, as is often the case now, they would pay taxes at ordinary income rates.
- Overall, make the tax code simpler, with fewer tax brackets and lower individual and corporate rates.
Not surprisingly, the President's budget sparked mixed reaction. "At a time when runaway spending and swelling deficits must be reversed, he worsens both immediately but, as usual, promises to fix them later," the Heritage Foundation said.
The Economic Policy Institute was a bit kinder: "On the revenue side, this year's budget goes further than prior Obama administration budgets in restoring tax-code progressivity and revenue that eroded under the administration of George W. Bush."
While it's too early to predict exactly how the proposals might fare, this report by the accounting and consulting firm McGladrey attempts to handicap them. For instance, the report concludes that the proposed Financial Crisis Responsibility Fee likely would face opposition. In part, that's simply because it's a new fee, which no one really likes. In addition, "a fee of this nature may also have a perverse effect, as it tends to indicate that the too-big-to-fail doctrine will continue," the report noted.