Information is starting to trickle out of the White House about the budget proposals that the President is to release on Wednesday of next week. The proposal will be controversial because it includes cuts in Social Security and Medicare spending. Here's what we know so far about the tax proposals in the plan.
1. It appears that President Obama will propose less in new revenue than the $975 billion called for in the budget resolution approved by the Democratic majority in the Senate. This seems very ill-advised, as we have already noted that the Senate resolution would not even raise enough revenue to pay for the level of spending that Ronald Reagan presided over. As the Washington Post explains,
The budget is more conservative than Obama’s earlier proposals, which called for $1.6 trillion in new taxes and fewer cuts to health and domestic spending programs. Obama is seeking to raise $580 billion in tax revenue by limiting deductions for the wealthy and closing loopholes for certain industries like oil and gas.
This revenue would be used to reduce the deficit.
The President's proposal will have some additional revenue-raising proposals, "increased tobacco taxes and more limited retirement accounts for the wealthy that are meant to pay for new spending." It is unclear how much those additional proposals would raise, but it appears that the total new revenue would be below what the Senate budget resolution calls for.
2. The vast majority of the President's proposed new revenue would come from his proposal to limit the tax savings of each dollar of certain deductions and exclusions claimed by wealthy taxpayers to 28 cents. A recent CTJ report breaks down the composition of the tax expenditures limited by this proposal and how some taxpayers would be affected.
3. One of the new revenue-raising proposals from the President that would pay for new spending is a limit on individual retirement accounts (IRAs) for the wealthy that CTJ proposed in its recent working paper on revenue proposals. We noted that IRAs provide a tax subsidy to encourage retirement saving, which Congress surely never intended to allow Mitt Romney to save $87 million tax-free.
The Washington Post reports Obama’s plan would
… also seek to generate revenue by limiting how much wealthy individuals can accrue in their tax-retirement accounts. Such accounts would be capped at $3 million in 2013 dollars — which officials say is enough to finance a $205,000 a year income.
We’ll have more analysis as we learn more.