President Obama’s fiscal 2017 budget envisions a mix of old and new ideas for taxes that Republicans are labeling a $3.4 trillion tax increase over the next 10 years.
Among the proposals are some far-reaching but now familiar ideas: Obama would curb the tax breaks available to high earners, institute the “Buffett Rule” setting a minimum tax rate for the wealthy, raise capital gains taxes, boost estate taxes, tax big banks, and revamp the taxation of businesses’ international income. He also would create new low-income tax credits or enlarge existing ones.
Just how large Obama’s tax hikes would be is a matter of debate.
Kevin Brady, the Republican chairman of the House tax-writing committee, pegged the number at $3.4 trillion over 10 years, equivalent to about an 8 percent increase in federal taxation over currently expected levels.
A senior administration official, however, said Tuesday morning that it was “hard to sort out precisely” how much of the total revenue raised by the budget was attributable to changes in tax legislation, because tax receipts would be affected by the proposed immigration reform, economic growth and a host of other factors.
Nevertheless, the bottom line is that the government would collect taxes equivalent to 18.9 percent of economic output in 2017 under the president’s plan, relative to 18.2 projected by the Congressional Budget Office under current law. By 2026, revenue would rise to 20 percent of GDP under Obama’s plan, relative to 18.1 percent in the CBO baseline.
Here’s what’s new in this year’s budget:
1. The administration wants to raise business taxes by $549 billion over 10 years.
The idea behind the new revenue is to offset the cost of the package of expiring temporary business tax breaks that were made permanent in a deal in December. “We’re proposing to finish the job on business tax reform,” a senior Treasury official said.
Last year, the administration proposed revenue-neutral business tax reform. Now that the revenue-losing deal that enshrined the tax breaks is law, however, the same tax reform will raise revenues.
Congressional Republicans, however, are not likely to accept tax-raising reform to pay for the package of tax breaks. In their view, the breaks, known as “extenders,” were typically renewed annually and were effectively permanent policy that shouldn’t have to be offset. In other words, Obama’s proposal is likely to be viewed as a tax hike if it’s picked up by future presidents.
2. The administration would like to close a loophole in a major Obamacare tax.
Obamacare imposed a net investment income tax of 3.8 percent on high-income earners. In the years since, however, according to the administration, some businesses that file taxes as individuals, including hedge funds, are avoiding the tax inappropriately through a carve-out meant for small businesses such as car dealerships.
In the budget, the administration included a plan that “eliminates loopholes and planning opportunities” available to people or businesses by filing as a certain kind of business, according to a senior Treasury official.
The administration would broaden the definition of net investment income to capture more partnerships and to equalize the impact of the tax across differently organized businesses. Doing so would raise an additional $270 billion over the 10-year budget window, which would be dedicated to the Medicare trust fund.
3. Obama would institute a new $10.25 a barrel fee on oil, phased in over five years. The revenue from the new tax would be used for infrastructure spending.
4. Under Obama’s plan, the Obamacare “Cadillac tax” imposed on high-cost employer-provided health care plans, already delayed by Congress, would be narrowed.
5. To encourage businesses to work with community colleges in preparing students for the workforce, the administration would create a new $5,000 tax credit for businesses that hired graduates from a community or technical college in an approved consortium. The budget calls for $500 million in tax credit authority for the years 2017 through 2022.
