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Obama’s budget and tax rehash

By Kay Bell · Bankrate.com
Thursday, April 11, 2013
Posted: 1 pm ET

I would say stop me if you've heard this before, but then you'd quit reading! I'm talking, of course, about President Barack Obama's fiscal year 2014 budget proposal.

Most of the tax proposals in the president's latest version (released April 10) of how he would like to finance our country's operations are the same items he's proposed previously, both in earlier budgets as well as in other fiscal fights with Congress.

Warren Buffett rule returns

We have the return of the so-called Buffett rule. You remember that idea, prompted by billionaire financier Warren Buffett's attention-getting revelation that he pays a lower overall tax rate than his secretary because most of his income comes from lower-taxed capital gains earnings.

Although the capital gains rate was increased from 15 percent to 20 percent for higher income earners under the American Taxpayer Relief Act of 2012, Obama still wants wealthier taxpayers, specifically millionaires, to pay more.

Under his new budget, a minimum 30 percent tax would be phased in for taxpayers making more than $1 million. Oh, and it has a new name. Buffett is off the hook; Obama is calling this the Fair Share Tax.

Reduced itemized deductions

Another American Taxpayer Relief Act provision, the reduction of itemized deductions by wealthier taxpayers, also gets tweaked in Obama's latest budget.

Under the current law, higher income taxpayers (those with adjusted gross incomes, or AGI, of more than $250,000 if single, $300,000 if married filing jointly) must reduce their itemized deductions by 3 percent of the amount over their AGI limits. There are worksheets for all this, but when all's calculated, itemized deductions can't be reduced by more than 20 percent.

Obama, however, is once again calling for a cap at 28 percent of the value of itemized deductions, such as mortgage interest, and specified exclusions, such as municipal bond interest. This would mean that a taxpayer in the top 39.6 percent tax bracket with a $10,000 itemized deduction would be able to claim only a $2,800 deduction instead of $3,960. He's also lowered the AGI limits to which this limit would apply.

Estate tax resurrection

The president also wants to change the estate tax rules -- which currently calls for an exemption for estates worth $5.25 million (that's the 2013 amount; it's indexed annually for inflation) or less and a 40 percent tax rate -- made permanent as part of American Taxpayer Relief Act. Obama's budget calls for dropping the exemption amount to $3.5 million and raising the tax rate to 45 percent.

Will we go back to the future in these tax areas? Not likely.

Obama's tax proposals must compete with those in the budgets already approved by the Democratic Senate and Republican House.

But at least we now have all three parts of the fiscal year 2014 budget puzzle. We'll just have to wait to see how Congress and the White House can put them together to form a cohesive financial picture.

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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4 Comments
Carrie
May 25, 2013 at 11:12 am

Jet, you seem to have the same comprehension problem as the author. I couldn't care less about Democrat vs. Republican plans - they're all the same in the end.

I was pointing out that a true "fair" tax - which is NOT currently proposed by either party - would tax everyone at the same rate. Think Hong Kong. That would be fair. Anything else is not fair. Do you understand now?

JET
April 17, 2013 at 6:09 pm

Correction Carrie. Nowhere in Obama's plan do all Americans get taxed at the same rate. Poor get taxed at 10%, middle income get taxed at 28%, etc. Even in the GOP plan they are proposing at 10% bracket and a 25% bracket. So by you stating "...all Americans at the exact same rate". There is no same rate in either of the budgets. In your very two sentences, it is you that seems to not understand the word "fair".

CP
April 15, 2013 at 11:51 am

I dont understand why there is so little support for replacing income tax with a national sales tax.

You want to tax rich people more? Tax their consumption. Rich people spend more, so they pay more. Taxing consumption taxes all income equally, so libs can stop complaining about capital gains rates and "unfair" tax breaks.

You want to tax poor people less? Make necessities (food, basic clothing, basic medical care, etc) tax exempt. If they want to waste money on beer and cigarettes, that is their choice. The things they need to survive are tax free.

You want to reduce government spending? This would eliminate the need for the IRS and the hundreds of billions of dollars that it costs to operate.

You want to increase tax revenues? Everybody, illegal or not, would be paying taxes since everybody, illegal or not, needs to buy things.

What's not to like?

Carrie
April 12, 2013 at 11:55 am

By definition, the Fair Share Tax would tax all Americans at the exact same rate. Someone has difficult comprehending simple words like "fair", it seems.