Government: Taxing the wealthy to stimulate the economy?
When he outlined his jobs program on Sept. 7, President Obama lamented that "a few of the most affluent citizens and corporations enjoy tax breaks and loopholes that nobody else gets." Now, Obama is proposing to take away from millions of high earners some of the tax breaks that everybody gets.
According to Jacob Lew, Obama's top budget aide, the White House wants to pay for its $447-billion jobs plan in large part by limiting personal exemptions and itemized deductions for individuals making over $200,000 and couples making over $250,000. Those changes would bring in a projected $400 billion over the coming decade, Lew said.
It wasn't immediately clear what limits Lew was proposing, but it's likely that the White House is simply calling again for returning to the status quo from 1990 until the mid-2000s. In those years, the tax code phased out the personal exemptions and reduced many types of itemized deductions for wealthier taxpayers as their income rose. Those provisions were included in the deficit-reduction plan signed by President George H.W. Bush, but they were gradually eliminated as part of the budget-busting tax cuts championed by President George W. Bush.
It's true that wealthier taxpayers take disproportionate advantage of itemized deductions. Nevertheless, those breaks are available to anyone, and they're especially helpful to moderate-income families with mortgages (thanks to the deductibility of mortgage interest). The personal exemption, meanwhile, is a break used by anyone who earns enough to pay income taxes. It carves $3,700 per family member from a household's taxable income.
By contrast, three other sets of tax breaks targeted for change by the White House are, in fact, unique to the extremely wealthy and corporations. According to Reuters, one would eliminate some of the breaks available to oil and gas companies, raising $40 billion over 10 years. Another would require investment-fund managers to pay taxes on their share of the funds' gains as if it were ordinary income, not capital gains, raising an estimated $18 billion. And the third would change a deduction for corporate jets, raising $3 billion.
These changes wouldn't go into effect for a little more than a year, in keeping with the administration's policy of trying to stimulate the economy (through borrowing) before starting to rein in the deficit. But the gradual payback that the White House views as a virtue may strike conservative Republican budget-cutters as a vice. So too is the fact that the White House proposes nothing but tax increases (or reductions in federal subsidies) to pay for the jobs plan. Although much of that plan's cost stems from tax cuts, almost half is from new spending on infrastructure, unemployment benefits and aid to local governments.
-- Jon Healey
Photo: Jacob Lew, President Obama's top budget aide, at briefing on White House jobs plan. Credit: Pablo Martinez Monsivais / Associated Press