BEYOND THE NUMBERS
Previewing the Obama Budget’s Tax Proposals
Below are some key facts and resources about some tax proposals we expect the President’s budget to include. Stay tuned for more analysis once the budget is released this morning.
Reforming Capital Gains Taxes
The tax code strongly favors income from capital gains — increases in the value of assets, such as stocks — over income from wages and salaries. These preferences are both economically inefficient and highly regressive. The President’s budget will include recently released proposals to address these problems by: 1) applying the capital gains tax to large, “unrealized” capital gains that wealthy individuals leave behind when they die; and 2) narrowing the differential between the top capital gains rate and the top tax rates on earned income by returning the capital gains rate to its level under President Reagan.
For more, see:
- Blog post: New Obama Tax Proposals Are More Progressive Than They May Appear
- Report: President’s Capital Gains Tax Proposals Would Make Tax Code More Efficient and Fair
- Statement: Robert Greenstein on the President’s New Tax Proposal
Strengthening Tax Credits for Working Families
As in last year’s budget, the President will propose extending the pro-work and anti-poverty effects of the Earned Income Tax Credit (EITC) to low-income workers not raising minor children, the lone group that the federal tax system taxes into poverty.
He will also call for permanently extending key provisions of the EITC and the Child Tax Credit slated to expire at the end of 2017; more than 16 million people (including nearly 8 million children) will fall into — or deeper into — poverty if they expire.
In a rare sign of possible bipartisan agreement, House Ways and Means Chairman Paul Ryan last year offered a proposal to expand the EITC for childless workers that’s almost identical to the Obama proposal.
For more see:
- Chart Book: The Earned Income Tax Credit and Child Tax Credit
- Report: Letting Key Provisions of Working-Family Tax Credits Expire Would Push 16 Million People Into or Deeper Into Poverty
- Report: Lone Group Taxed Into Poverty Should Receive a Larger EITC
Giving the IRS More Adequate Funding
Significant cuts to IRS funding in recent years have compromised taxpayer service and weakened enforcement of the nation’s tax laws. As in last year’s budget, we expect the President’s budget to restore more adequate funding for this essential agency.
For more, see:
- Report: Cuts in IRS Budget Have Compromised Taxpayer Service and Weakened Enforcement
- Blog post: IRS Funding Cuts Likely Mean More Tax-Credit Errors
- Blog post: IRS Funding Cuts Harm Customer Service and Raise Deficits
Reforming Corporate Taxes
The tax code tax encourages multinational corporations to shift investments and U.S.-earned profits to foreign tax havens. The President’s budget is expected to reiterate his previous calls for corporate tax reform that reduces those incentives while broadening the tax base, as well as including new proposals to reform the international tax system.
For more, see:
- Blog post: Obama’s Transition Tax on Offshore Profits Is Sound, But a Higher Rate Would Bring More Revenue Without Adverse Economic Effects
- Blog post: The Tax Code’s Foreign Tilt
- Blog post: Obama Proposal a Clear Step Forward, But Would Be Better With More Revenue
- Blog post: Don’t Put the Cart Before the Horse by Prematurely Setting a Top Corporate Tax Rate
Raising Tobacco Taxes to Invest in Early Childhood Education
The President has called for expanding preschool education. His last budget proposed to finance it by raising the federal excise tax on tobacco products. Tobacco taxes are a proven strategy to reduce smoking, particularly among teenagers and low-income people, and reducing smoking rates would generate substantial health gains.
For more, see:
