The Joint Committee on Taxation reported that the “Buffett Rule” would generate less than $5 billion per year for a total of less than $47 billion over the next eleven years. From these numbers, the “Buffett Rule” would barely put a dent into the $7 trillion projected federal budget deficit during that period.
More “Buffett Rule” Coverage
Citizens for Tax Justice published a report today explaining why Congress should raise revenue by eliminating tax loopholes and tax subsidies. The report goes on to outline eleven specific options to raise revenue and how much revenue could be raised from each option. The table below briefly describes each option and shows how much revenue could be raised from each option.
For the complete Citizens for Tax Justice report see this link
In one of my first posts I discussed the tax benefit Facebook will receive from its IPO. Earlier this week Senators Carl Levin and Kent Conrad proposed legislation to do away with what they called “the stock option tax loophole.” Under the senators’ bill, corporations would not be allowed to claim tax deductions for stock options that are larger than the expense they report on their financial statements. The bill would also subject stock options to the same $1 million cap on deductions for executive compensation that currently applies to other forms of compensation. The bill also proposes to close many tax loopholes besides the stock option tax loophole discussed here.
For my previous post on the tax consequences of Facebook’s IPO see this link
For Senator Levin’s statement on the stock option tax loophole see this link
For more information on the complete bill see this summary
The Center on Budget and Policy Priorities published a report outlining the six objectives a well-designed corporate tax reform proposal should accomplish.
- Contribute to long-term deficit reduction
- Reduce the tax code’s bias towards overseas investments
- Improve economic efficiency by reducing special preferences
- Provide more neutral treatment of corporate and non-corporate businesses
- Reduce the tax code’s bias towards debt financing
- Take specific steps to discourage tax sheltering
For the complete report see this link
Calvin H. Johnson proposes how to raise $1 trillion of revenue a year under our current tax system without a VAT or a rate hike in a Shelf Project article. He would raise this revenue by making tax accounting better reflect economic income. The tax base has been eroded as tax accounting and economic income have grown apart, so by bringing them closer together the tax base will be broadened. The result of a broader tax base is that tax rates do not have to be increased to raise more revenue. Assuming the tax base is not broadened, the Tax Foundation projects that the current deficit will require maximum tax rates of 85%. Taxpayers are unlikely to be receptive to maximum tax rates of 85%, and as Johnson describes, a maximum tax rate of 85% would be disastrous to the economy, so some sort of tax base broadening seems to be a much better solution.
A Wall Street Journal editorial explains that the total tax on corporate earnings distributed to shareholders as dividends would be 64.12% under President Obama’s 2013 budget. The current total tax on corporate earnings distributed to shareholders as dividends is 44.75%, which means Obama’s 2013 budget would result in an almost 20% increase. Under Obama’s 2013 budget, the 64.12% number would only apply to single taxpayers with adjusted gross income greater than $200,000 and married couples with adjusted gross income greater than $250,000, but the WSJ editorial argues that this increase will affect all shareholders. The editorial supports this argument with historical evidence that shows corporate dividend payouts are sensitive to the dividend tax rate. The amount of dividends reported on tax returns grew substantially starting when the dividend tax rate dropped to 15% in 2003, and companies that had never paid a dividend before, such as Microsoft, began paying dividends when the dividend tax rate dropped to 15%. The historical evidence from the editorial certainly raises some interesting questions that need to be analyzed before such a large increase in the dividend tax rate takes effect.
President Obama’s 2013 Budget was released on Monday and featured numerous tax proposals. Last week I discussed the proposed tax plans of Mitt Romney and Newt Gingrich, so now I will discuss Obama’s tax treatment of the same items discussed in the post on the Republican candidates’ plans and highlight other interesting proposals in Obama’s tax plan.
Long-Term Capital Gains
20% tax rate for married taxpayers filing jointly with adjusted gross income over $250,000
15% tax rate for everyone else
39.6% tax rate for married taxpayers filing jointly with adjusted gross income over $250,000
15% tax rate for everyone else
Obama has not released his corporate tax proposals yet
Estate and Gift Tax
$3.5 million exclusion amount for estate taxes
$1 million exclusion amount for gift taxes
45% tax rate
Carried interest taxed at ordinary rates
“Buffet Rule” to replace AMT (taxpayers with adjusted gross income greater than $1,000,000 will have a minimum effective rate of 30%)
Top ordinary rates changed from 33% and 35% to 36% and 39.6% for married taxpayers filing jointly with adjusted gross income greater than $250,00
100% bonus depreciation extended for 2012 and 2013
The obvious difference between President Obama’s tax plan and the Republican candidates’ tax plans is President Obama taking aim at the upper-income taxpayers. The Republican candidates’ proposed to lower or keep the rates the same as current law for long-term capital gains, dividends, and interest income while Obama proposes to raise rates on long-term capital gains and dividends for upper-income taxpayers. Almost every proposal discussed above is aimed at having upper-income taxpayers paying more taxes while as I discussed in the previous post, the Republican candidates’ seem to be catering to the upper-income taxpayers in their tax plans. Not surprisingly, taxpayers, especially upper-income taxpayers, will have very different tax liabilities depending on who is the next president.
For explanations of all the tax proposals in Obama’s 2013 Budget see the Department of Treasury’s Explanations
For a comparison of the proposed federal tax rates of the tax plans of Obama and Romney see this chart
Taxes seem to be a popular topic in the presidential race. From the release of Mitt Romney’s tax return to reports of Newt Gingrich taking advantage of a Medicare tax loophole by using a Subchapter S tax shelter, it appears that how the presidential candidates report their taxes is being pushed to the forefront. More important than how the candidates report their taxes are the tax plans that each candidate plans to implement if elected. Below I will discuss some of the key points of the tax plans of Mitt Romney and Newt Gingrich.
Romney: permanently extend all the 2001 and 2003 tax cuts
Gingrich: continue under the current tax policy or elect to pay a 15% flat tax
Romney: no tax on long-term capital gains for individuals earning income under $100,000 or married couples filing jointly earning income under $200,000
Gingrich: no tax on capital gains
Romney: no tax on dividends for individuals earning income under $100,000 or married couples filing jointly earning income under $200,000
Gingrich: no tax on dividends
Romney: no taxes on interest income for individuals earning income under $100,000 or married couples filing jointly earning income under $200,000
Gingrich: no tax on interest income
Romney: reduce corporate rate to 25%, make research and experimentation credit permanent, extend 100% expensing of capital expenditures for one year, and allow a “tax holiday” for repatriation of corporate profits held overseas
Gingrich: reduce corporate rate to 12.5% and allow 100% expensing of new equipment
Estate and Gift Tax
Romney: repeal estate tax and keep gift tax with a maximum rate of 35%
Gingrich: repeal death tax (interesting that Gingrich uses the term “death tax,” which has been used by many pushing to have the estate tax repealed)
Obviously the tax plans of these two candidates contain many more provisions than what is discussed above, but this highlights the areas of tax that get the most publicity. The tax plans of Mitt Romney and Newt Gingrich have a lot in common as displayed above, with the overarching themes seeming to be simplifying taxes and taxing the wealthy less. Both are catering to the wealthy with their policies toward capital gains, dividends, and interest income, which are forms of income predominantly earned by the wealthy, while also benefitting the wealthy with lower corporate rates and repealing the estate tax. If either ends up being elected president, it will be interesting to see how much of the proposed tax plan gets implemented since each of these two tax plans will result in much less revenue.