Obama would allow the lower Bush tax rate of 35 percent to expire, bringing the tax rate back up to 39.6 percent for families earning more than $250,000 annually. His proposal would limit the reach of the Alternative Minimum Tax, a problematic tax Congress regularly has to “patch” at the end of the year because, while originally intended to ensure that the wealthy pay a minimum amount, the tax increasingly ensnares middle-class payers. But Obama would still employ an AMT-like tax by limiting the rate at which individuals can reduce their tax burden through deductions to a 28 percent income-tax liability. That measure would bring in an estimated $500 billion over 10 years.
The proposal would also raise the estate tax and the gift tax to 2009 levels of 45 percent over a given threshold — the first $3.5 million of an individual’s estate, and the first $1 million of a gift, would be exempt — to raise nearly $250 billion over 10 years. He would raise the capital-gains tax to 20 percent, ending the preferential Bush-era rate of 15 percent.
Altogether, the budget’s tax proposals would raise some $2 trillion more than if current tax policies were simply extended for 10 years. Obama is more specific than the budget plan being pushed by Rep. Paul Ryan, R-Wis., about the tax expenditures he would end (like the preferential capital-gains rate), but he hasn’t made any move to go after the breaks where the real money is, like the mortgage-interest deduction.
Obama would lower the corporate tax rate to 28 percent, according to a separate corporate tax reform proposal he released in February, and he would implement a minimum tax on overseas earnings. He would also get rid of various business tax deductions and give a 20 percent income-tax credit for businesses that move jobs back to the United States.
SEQUESTRATION/LONG-TERM DEFICIT REDUCTION:
Like Ryan, Obama wasn’t happy to leave the Budget Control Act — passed with the debt-ceiling increase last year — alone in his budget. The law, if allowed to take effect, would trim the deficit by $2.3 trillion over 10 years through a combination of annual spending caps and automatic across-the-board cuts, split evenly between defense and nondefense programs.
Obama’s proposal would remove the firewall between the caps on defense and nondefense annual spending, and its proposal for the next fiscal year actually transferred some money from nondefense to defense programs. Still, Republicans have attacked Obama for failing to address the nearly $500 billion in defense spending cuts over 10 years set to take effect in January.
(SEE ALSO: The Ryan's Budget: By the Numbers)
DEFENSE: The president’s proposal would implement defense cuts totaling nearly $500 billion over a decade.
SOCIAL SECURITY: Like the Ryan proposal, Obama’s budget made no changes to Social Security.
HEALTH CARE:The president’s plan relies on his health care law for most savings, counted in the form of lower drug costs, limited procedural and equipment payments, and the suggestions of the Independent Payment Advisory Board. The most recent estimate of the law’s costs and savings, released after the Supreme Court’s decision, found that it would be $84 billion cheaper over 10 years, now that states are allowed to opt out of the Medicaid expansion.
MEDICARE: Obama’s budget counts about $150 billion in fees from drug manufacturers participating in Medicare Part D over 10 years; the plan would also reduce the growth in provider payments and increase premiums for high earners.
MEDICAID: The budget counts about $50 billion in Medicaid savings, largely from streamlining state matching rates.
PROGRAMS THAT HELP THE POOR: Obama took heat from members of his own party for his proposal to dramatically reduce funding for a program that gives heat and energy assistance to the poor; but for the most part, the plan stays away from low-income assistance programs.
FINANCIAL-SERVICES REFORMS: The president’s plan would increase funding for financial regulators, requesting more than $2 billion for the next fiscal year to implement the Dodd-Frank financial-reform law.
ENERGY POLICY: Obama’s plan would dramatically increase energy funding, to the tune of more than 40 percent over current levels. It would direct much of the money to research and development of clean-energy technologies, programs that fund energy studies, and research on nuclear waste. Energy-efficiency initiatives and incentive programs would also receive higher funding.
The budget would repeal $4 billion worth of tax subsidies that oil companies receive each year and cut nearly $100 million in funding for clean-coal initiatives. Obama has also delayed development of the Keystone XL pipeline, calling for a more thorough review of the project’s potential repercussions.
Obama would marginally decrease funding for the Environmental Protection Agency (by about 2 percent), continuing the trend of his previous two budgets. The plan would cut funding for nonemergency hazardous waste, while increasing spending on air quality. It would also streamline grant programs for state and local governments.