Obama's Budget Said to Seek Tax Increases, Entitlement Cuts
Senior administration officials have telegraphed that a series of concrete tax proposals will play a key role in Obama's 2014 budget proposal, which is due out Wednesday.
The White House has also signaled that Obama will propose cuts to entitlement spending. Overall, officials say, his proposed spending cuts and revenue increases would reduce deficits by $1.8 trillion. Of that, $1.2 trillion would replace the forced budget cuts that went into effect on March 1.
The president's budget, which comes after the Senate and House have each passed separate and very different 2014 budget frameworks, isn't expected to be enacted.
In fact, it has already drawn fire from the right and the left: Republicans, who agreed to roughly $600 billion in revenue increases in the fiscal cliff deal at the start of the year, have signaled they'll reject his tax proposals, at least not without far more significant spending cuts. And some Democrats and entitlement advocacy groups have blasted a measure he will propose that would result in smaller-than-promised Social Security benefits.
But the plan lays the marker for what Obama will seek in tax increases when he negotiates with Congress later this year.
Some of the tax measures Obama will unveil formally on Wednesday will resemble his previous proposals, and in most cases, they will be aimed at the wealthy.
Impose new limit on tax-deferred retirement accounts: Among his new tax measures, Obama will propose setting a $3 million limit on an individual's savings balance across IRAs and other tax-preferred retirement accounts.
A $3 million balance could finance an annuity of $205,000 per year in retirement, according to senior administration officials, who added that the proposal could raise an estimated $9 billion over a decade.
It's unclear how the proposal would be implemented. For instance, what would happen if a balance exceeds $3 million for a short while, but then falls below $3 million?
But in theory, "the logic of such a proposal makes sense: We want to encourage people to save for retirement but that should not be open-ended. Rich folks don't need government subsidies to encourage and enable them to save for retirement," said Roberton Williams of the Tax Policy Center.
Add new tax on cigarettes and other tobacco products: To fund expanded access to pre-K education, an idea floated in the president's State of the Union address, Obama will propose a new federal tax on cigarette and other tobacco products.
It won't be the first time. In 2009, he signed into law a federal tax increase on cigarettes to help pay for an expansion of the State Children's Health Insurance Program, which provides health care for 8 million children.
Change how inflation is measured: Obama has already gotten a torrent of criticism from the left for supporting a switch to chained CPI, which is a new way to measure inflation that will reduce projected federal spending by slowing the growth in federal benefits that are annually adjusted for cost of living.
But chained CPI would also raise more revenue, since many parts of the tax code are adjusted for inflation every year, including income tax brackets, the standard deduction, phase-out levels for tax credits and contribution limits to 401(k)s.
In President Obama's fiscal cliff negotiations with House Speaker John Boehner, he supported a switch to chained CPI, which the White House estimated would raise about $100 billion in revenue alone.
The Tax Policy Center estimates that by 2020, the use of chained CPI could mean an average tax increase of $311 among the nearly 81 percent of households that would see a tax increase.
Cap value of itemized deductions: The president again will call for limiting the value of itemized deductions and exclusions for high-income households.
Normally a taxpayer multiplies her top tax rate by the amount of a deduction to calculate the taxes saved. But Obama would cap that rate at 28 percent, which is below the top two income tax rates. So someone in the 39.6 percent bracket today would save $39.60 on a $100 deduction. Under Obama's proposal, she would save $28.
Raise tax rate on investment fund manager income: Managers of private equity, venture capital and hedge funds are taxed 20 percent on the portion of their compensation known as carried interest, essentially paying the long-term capital gain rate.
Obama would like carried interest to be treated as ordinary income, which means those managers would pay a rate as high as 39.6 percent, or more than 2.5 times the rate they pay now.
Close 'loopholes': Any number of proposals may fall under this favorite catch-all phrase of politicians.
Often topping the president's loophole list are tax breaks that benefit oil and gas companies. So it will come as no surprise if he once again calls for their repeal or modification.
CNN chief White House correspondent Jessica Yellin contributed to this report.
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