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Obama Deficit Plan Expected to Include Tax Increases

April 12, 2011

The deficit reduction plan that President Obama plans to introduce on Wednesday is expected to include a combination of spending cuts and tax hikes.

The tax hikes are mainly expected to involve raising taxes on individuals who earn over $250,000 a year, a familiar refrain dating back to Obama’s 2008 campaign. Last year, with the Bush-era tax rates about to expire, Obama had initially supported letting the tax cuts expire for married couples making over $250,000 a year and individuals earning over $200,000. But then in a last-minute deal with Republican congressional leaders, he agreed to a two-year extension of the tax rates for people at all income levels. However, Obama had insisted that it was only a two-year extension and that the tax rates would need to go up on high earners afterward.

There may be other so-called revenue raisers in the Obama deficit reduction plan, including the elimination of some corporate tax benefits that encourage companies to move jobs overseas, and perhaps higher taxes on the carried interest earnings of venture capitalists and private equity firm partners. Democrats have pushed for both of those types of tax provisions in the first two years of the Obama administration, but have been rebuffed in Congress, thanks to influential lobbyists.

Obama is also expected to call for spending cuts, including in defense, and reforms in Medicare and Medicaid.

The Republican fiscal 2012 budget resolution introduced last week by House Budget Committee Chairman Paul Ryan, R-Wis., mainly relies on spending cuts for deficit control. However, Ryan’s plan also calls for the elimination of unspecified tax loopholes, but at the same time would cut the top tax rate for individuals and corporations from 35 percent to 25 percent. He also wants to privatize Medicare through a “premium subsidy model” and transform Medicaid into a block grant program. We can expect there to be much more debate in Washington in the months ahead.

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