President Lays Out Deficit Reduction Plan
The debate over tax policy as an aspect of deficit reduction is in full swing. In a recent speech before the Economic Club of Washington, House Speaker John Boehner (R-OH) called on the Joint Committee to resist attempts to raise taxes and instead focus on spending restraint and entitlement reform, although he did acknowledge the committee’s process could be a tool to accomplish revenue neutral tax reform.
President Obama has called for increased taxes on higher income Americans, including a new “Buffet Rule” to ensure a minimum level of taxation for those earning more than $1 million per year. On Monday the President unveiled his more specific proposal for the Joint Committee and issued a veto threat for any legislation cutting Medicare that does not include higher taxes on corporations and higher income Americans. The plan calls for $1.5 trillion in additional revenues beginning in 2013, including:
- $866 billion from allowing the 2010 Tax Act parameters to expire for individuals earning more than $200,000 per year and the estate tax to return to 2009 levels (45% rate and $3.5 million exemption)
- $410 billion from limiting deductions and exclusions for individuals earning more than $200,000 per year to 28 percent and
- $300 billion from “closing loopholes and special interest tax breaks”, which would include taxing carried interests as ordinary income, altering corporate jet depreciation, removing oil, gas and coal tax provisions, altering rules for dual capacity taxpayers, repealing the LIFO accounting method, revising treatment of insurance companies and products and making other changes to the tax code
The proposal stands very little chance of becoming law in its current form due to the strongly negative reaction from Republicans on the Hill and its consideration of “savings” in a manner that does not comport with the Joint Committee’s required “current law” baseline. For example, the President’s call for returning to a 45% rate and $3.5 million exemption for estate taxes in 2013 would actually cost, instead of save, additional revenue because those parameters are more favorable than the 55% rate and $1 million exemption already scheduled to take effect under current law. While Policy and Taxation Group opposes the proposed changes to the rate and exemption, we are pleased that the outline does not include the elimination of valuation discounts or limitations on grantor-retained annuity trusts (GRATs). Families will need to remain vigilant to decrease risk in the weeks ahead.