WASHINGTON – President Barack Obama’s budget proposal resurrects a series of tax increases on certain corporations and the wealthy that were largely ignored by Congress when Democrats controlled both chambers. Republicans, who now control the House, are signaling they will be even less receptive.
The plan unveiled Monday includes tax increases for oil, gas and coal producers, investment managers and U.S.-based multinational corporations. The plan would allow Bush-era tax cuts to expire at the end of 2012 for individuals making more than $200,000 and married couples making more than $250,000. Wealthy taxpayers would have their itemized deductions limited starting in 2012, including deductions for mortgage interest, charitable contributions and state and local taxes.
Limiting those deductions would raise an additional $321 billion over the next decade. That money would be used to spare more than 20 million middle-income taxpayers from getting hit with a big tax increase from the alternative minimum tax for three years. Congress routinely passes a fix each year to spare middle-income taxpayers from the alternative minimum tax, but the cost is usually added to the budget deficit through increased borrowing.
“What we’ve done here is make a down payment, but there’s going to be more work that needs to be done, and it’s going to require Democrats and Republicans coming together to make it happen,” Obama said.
Obama’s proposal would extend tax credits for college expenses and expand them for child care. A more generous Earned Income Tax Credit for families with three or more children would be made permanent.
The plan would enhance and make permanent a popular business tax credit for research and development, and would provide tax breaks for investing in manufacturing and for making commercial buildings more energy efficient.
In all, the budget proposal would impose about $730 billion in new taxes on businesses and wealthy individuals over the next decade, while cutting about $400 billion in taxes on middle-income families, the working poor and other businesses, for a net tax increase of about $330 billion.
Those numbers, however, don’t include additional tax revenue from letting Bush era tax cuts for the wealthy expire at the end of 2012. Letting those tax cuts expire would generate an additional $709 billion over the next decade, according to the budget proposal.
Many of the tax increases were in the president’s previous budget proposals, offered when Obama could expect a more friendly reception from Congress. Lawmakers from both political parties, however, have been wary of limiting the ability of high earners to deduct charitable contributions out of concern it will hurt non-profit organizations.
A group of Senate Democrats has come out in favor of raising taxes on oil and gas companies, but Republicans, who generally oppose such tax increases, have the votes to block them in the Senate.
“The president recognizes that we don’t need to provide 100 year-old tax breaks to oil companies so they can sell $100 per barrel oil and make more than $100 billion per year,” said Rep. Edward Markey, D-Mass.
Congressional Republicans called Obama’s proposal a missed opportunity to address the nation’s fiscal problems.
“In the face of record-high deficits and continued high levels of unemployment, a budget that imposes massive job-killing tax hikes on small businesses and fails to address entitlement reform or tax reform is hardly the answer,” said Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee. “Rather than setting the stage for broad-based, pro-growth tax reform, this budget goes in the opposite direction with more tax hikes.”
Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said Republicans will oppose the tax increases in Obama’s budget proposal.
“Keeping pace with its liberal tax-and-spend agenda, the Obama administration hits almost every sector of our economy with a tax hike — energy taxes, taxes on hiring, higher income taxes,” Hatch said. “That’s not how we get our country moving forward.”
Obama has called for reforming individual income taxes and corporate taxes, saying he wants to eliminate special interest tax breaks and use the additional revenue to lower overall tax rates. Obama’s budget proposal, however, breaks little new ground on the issue.
“Successful comprehensive tax reform is a long process, often taking several years,” Obama says in his budget message. “But even though it is a daunting task, we cannot afford to shirk from the work.”
In December, Congress extended through 2012 a series of tax cuts enacted under former President George W. Bush. Obama’s proposed new budget calls for letting the tax cuts expire for the wealthy at the end of 2012, while making them permanent for individuals making less than $200,000 and couples making less than $250,000.
Republicans want to make all the tax cuts permanent, setting the stage for a showdown that could play out in the middle of the 2012 presidential election.