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.
Want the latest news on taxes, tax reform prospects, filing deadlines, political fights, Internal Revenue Service alerts and tax-saving tips? Subscribe to Bankrate’s free Daily Tax Tip newsletter, our Weekly Tax Tip newsletter or, if you’re a true tax geek, both!
You also can follow me on Twitter @taxtweet.
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.”