President Barack Obama introduced a $3 trillion deficit reduction plan on Monday that includes a new tax on millionaires, lower corporate tax rates, and the closing of tax loopholes and tax breaks, especially for the wealthy.
“This plan eliminates tax loopholes that primarily go to the wealthiest taxpayers and biggest corporations—tax breaks that small businesses and middle-class families don’t get,” he said. “And if tax reform doesn't get done, this plan asks the wealthiest Americans to go back to paying the same rates that they paid during the 1990s, before the Bush tax cuts.”
The plan also includes structural reforms to Medicare and Medicaid, but avoids raising the minimum age for Medicare eligibility. Obama’s plan aims to cut the deficit by $3 trillion over 10 years, on top of the more than $1 trillion in cuts already agreed to as part of the debt ceiling deal. A bipartisan joint committee in Congress is already working on a deficit reduction plan to follow up on last month’s debt ceiling deal. In part, Obama’s plan depends on savings from the anticipated end of fighting in Iraq and Afghanistan, and on changes to the Tax Code, which Obama said he wants to work with Congress on enacting.
“We can’t afford these special lower rates for the wealthy—rates, by the way, that were meant to be temporary,” said Obama. “Back in 2001, 2003, these tax cuts were talked about as temporary measures. We can’t afford them when we’re running these big deficits. Now, I am also ready to work with Democrats and Republicans to reform our entire Tax Code, to get rid of the decades of accumulated loopholes, special interest carve-outs, and other tax expenditures that stack the deck against small business owners and ordinary families who can’t afford Washington lobbyists or fancy accountants. Our Tax Code is more than 10,000 pages long. If you stack up all the volumes, they’re almost five feet tall. That means that how much you pay often depends less on what you make and more on how well you can game the system, and that's especially true of the corporate Tax Code.”
Obama indicated he would support a lower corporate tax rate, but only in exchange for getting rid of what he called “special interest loopholes.”
“We’ve got one of the highest corporate tax rates in the world, but it’s riddled with exceptions and special interest loopholes,” he said. “So some companies get out of paying a lot of taxes, while the rest of them end up having to foot the bill. And this makes our entire economy less competitive and our country a less desirable place to do business. That has to change. Our Tax Code shouldn’t give an advantage to companies with the best-connected lobbyists. It should give an advantage to companies that invest in the United States of America and create jobs in the United States of America. And we can lower the corporate rate if we get rid of all these special deals. So I am ready, I am eager, to work with Democrats and Republicans to reform the tax code to make it simpler, make it fairer, and make America more competitive. But any reform plan will have to raise revenue to help close our deficit. That has to be part of the formula.”
However, the plan already faces resistance from Republic lawmakers, who denounced the millionaire tax, also known as the “Buffett Rule,” on Sunday when word of the plan leaked out over the weekend (see Obama to Propose Millionaire Tax).
“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” said Obama. “That’s pretty straightforward. It’s hard to argue against that. Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it.”
The plan would also cut agricultural subsidies to large farms for crops they do not grow, and slash spending on Fannie Mae and Freddie Mac.
The plan includes some of the elements of the American Jobs Act that Obama introduced last week (see Obama Sends Jobs Bill with Tax Cuts to Congress). In his Rose Garden speech Monday, Obama called for tax fairness.
“It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000, should pay higher tax rates than somebody pulling in $50 million,” said Obama. “Anybody who says we can’t change the Tax Code to correct that, anyone who has signed some pledge to protect every single tax loophole so long as they live, they should be called out. They should have to defend that unfairness—explain why somebody who’s making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying a higher rate. They ought to have to answer for it. And if they’re pledged to keep that kind of unfairness in place, they should remember, the last time I checked the only pledge that really matters is the pledge we take to uphold the Constitution.”
Obama also responded to a comment by House Budget Committee Chairman Paul Ryan, R-Wis., who referred to Obama’s plan for a special tax rate for millionaires as “claws warfare” during an interview on Fox News Sunday.
“Now, we’re already hearing the usual defenders of these kinds of loopholes saying this is just ‘class warfare,’” said Obama. “I reject the idea that asking a hedge fund manager to pay the same tax rate as a plumber or a teacher is class warfare. I think it’s just the right the thing to do. I believe the American middle class, who have been pressured relentlessly for decades, believe it’s time that they were fought for as hard as the lobbyists and some lawmakers have fought to protect special treatment for billionaires and big corporations. Nobody wants to punish success in America. What’s great about this country is our belief that anyone can make it and everybody should be able to try—the idea that any one of us can open a business or have an idea and make us millionaires or billionaires. This is the land of opportunity. That’s great. All I’m saying is that those who have done well, including me, should pay our fair share in taxes to contribute to the nation that made our success possible. We shouldn’t get a better deal than ordinary families get. And I think most wealthy Americans would agree if they knew this would help us grow the economy and deal with the debt that threatens our future.”
Obama compared the need to raise taxes on the wealthy to cutting Medicare, education and medical research. He promised to veto any deficit reduction plan produced by the joint congressional super committee that included cuts in Medicare spending without tax increases.
“It comes down to this: We have to prioritize,” he said. “Both parties agree that we need to reduce the deficit by the same amount—by $4 trillion. So what choices are we going to make to reach that goal? Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both. Either we gut education and medical research, or we’ve got to reform the Tax Code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both. This is not class warfare. It’s math. The money is going to have to come from someplace. And if we’re not willing to ask those who've done extraordinarily well to help America close the deficit and we are trying to reach that same target of $4 trillion, then the logic, the math says everybody else has to do a whole lot more. We’ve got to put the entire burden on the middle class and the poor. We’ve got to scale back on the investments that have always helped our economy grow. We’ve got to settle for second-rate roads and second-rate bridges and second-rate airports, and schools that are crumbling. That’s unacceptable to me. That’s unacceptable to the American people. And it will not happen on my watch. I will not support any plan that puts all the burden for closing our deficit on ordinary Americans. And I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share. We are not going to have a one-sided deal that hurts the folks who are most vulnerable.”
19 Comments
Everyone thinks it's so hard to come up with a flat rate of tax. All they would have to do is: tell all businesses they are now a corporation, which would be tax exept, and the only way to pay people working for the corporation would be a salary and withhold 10% of the salary for federal income taxes withhold the correct soc. sec and medicare and withhold whatever income tax rate the State adapts. If they're paying unearned income out (i.e., dividends) to withhold 10% on the dividends for federal income taxes.
In my thirty-five years of tax practice, the 10% tax rate would produce more revenue than it does now. A lot of people will say 10% wouldn't work, but I believe it would because everyone employed would be paying 10%, not just the working middle class and there would not be any itemized deductions, plus the IRS would only be needed to collect and deposit the revenues.
Posted by: sjloper | September 23, 2011 10:58 AM
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Some of my fellow practicioners are missing the point, if someone has $300,000 (after deductions)in icome from Dividends(Qualified) and another person has wages on a W2 of $300,000, why should the person with Dividend Income Pay a lower tax rate. I agree have them pay the same rate, but eliminate the AMT.\ Also a self employed person who may have to say keep $ 75,000K in the Bank (so $300,000 K in Net is not the same as a W2 $300,000K) allow some kind of "operating deduction", for flow through entites, S, Partnership, LLC/LLP, for cash retained in the Entity. Example a formula could be expenses/12. I sure someone can think of a better example but often the self employed know they must retian cash for fixed overhead.
Posted by: neparms | September 22, 2011 2:39 PM
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The only solution given in this forum was a flat tax. This will never happen as the tax system is used to managed the economy from time to time. Not one plan from you all. Talk is cheap !!!
The president is waiting for you ideas you can just e-mail them..
The President was handed two wars and a bad economic downturn by the republicans. What do you expect in 2 years.
Here is a simple solution. Get out of the wars now. Cut military spending like Bill Clinton did and the budget would be balanced in two years or so. Take some of the savings and stimulate the economy. Housing, car, and infrastructure projects.
Posted by: JDAVIS | September 21, 2011 5:23 PM
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Someone please school the president in the difference between a statutory and effective tax rate!!!
Posted by: TaxGirl | September 21, 2011 4:18 PM
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I've been the budget manager for a $450 million company back when that would almost make the cut for the Fortune 500. If we came up with the plan of let us over run the budget for the next 2 years by 50% and we will recoup that over run by 2017. The CEO, CFO and me would be looking for new employment well before the laughing stopped.
This Obama's budget and if he can't keep the spending in line with the budget, he is either incompetent in developing a realistic budget or can't control Congress to stay within the budget. This man's only hope for re-election is to bring the spending in on budget.
Posted by: WCSCPA | September 21, 2011 1:22 PM
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He forgot to mention a $15,000 per year taxpayer pays a NEGATIVE 45% rate.
He forgot to mention (this is only a rough estimate) that the earned income credit, child tax credit and make work pay credits equal the tax on $350,000,000,000 at the maximum tax rate.
He forgot to mention the fact that in the last several years we have been shifting income in this country via the tax system. See comment above "one of the primary purposes of tax law is for societal influence".
Cut through the rhetoric, the problem is not who pays what. The problem is the criminal and/or maleficent fiscal policy practiced by our elected representatives for the last 80 years. Ask yourself, what would you do with a client that is going bankrupt and continues to spend money like a drunken sailor. And they don't care because their debts become your debt.
Posted by: WCSCPA | September 21, 2011 12:17 PM
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Lucky for Obama and the Libs that there a lot of ignorant people who believe what he is saying. A simple question...What was the tax rate the "filthy" rich paid when they generated the capital to invest in the vehicles that return earning which are now taxed at the "disgusting" low 15% tax rate? Well let me tell you it was at a much higher rate than what a nurse, teacher or construction worker earning $50K pays!! For that fact Obama, if these nurses, teachers or construction workers earning 50K have any itemized deductions, or are married or have children they are paying very little tax...certainly not more than 15%. Please stop spinning the facts and using rhetoric simply to get re elected. Please start trying to do what is best for America not what is best for you! That goes for all our Politicians on both sides of the isle.
Posted by: knwalcutt | September 21, 2011 7:49 AM
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How about we stop paying Congress members that are no longer in office. And as long as we are going to reducing the budget from those that can afford it, all the laws in existence should have to apply to Congress and all government officials that are currently exempt.
Posted by: skweinhardt | September 21, 2011 7:34 AM
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"The Buffett tax -- and I think they're mispronouncing it. It ought to be called the "buffet tax," not Buffett, since anybody and everybody who makes over $200,000 a year is now on the menu and is about to get carved up."
Posted by: RL | September 20, 2011 3:38 PM
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Nice sound bites for his re-election campaign, but really just more smoke and mirrors snake oil from the Messiah of Magic Geni Lanterns himself. I highly doubt even he has the fortitude to actually push what he is asking for, it would alienate too many of the ranks in his own party who rely on contributions from big business (GE) and the "wealthy" (Soros anyone?). As it is, Nov 2012 cannot get here fast enough for me.
Posted by: manetco | September 20, 2011 1:59 PM
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Comments like the one the President makes about a 50k construction worker's tax rate being more than a guy making $50 mil are the reason politicians have lost the trust of the people. A 50k single taxpayer with no itemized deductions will pay about $6900 in fed income tax(13.8%). The guy making $50 million will be paying in at the 15% rate at best assuming all his income is capital gains or dividends. Any earned wages, pass through business income, interest income or the like will be at ordinary rates that are much higher. We need to cut the crap, and get some intelligent folks in Washington that will really lead us. I fear the majority of our current leadership are merely playing the political game of screw the other party at any cost and hope they can spin things in their favor enough to get re-elected.
Posted by: dblanton | September 20, 2011 1:49 PM
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Most every introductory accounting course will outline one of the primary purposes of tax law is for societal influence. Tax law is routinely changed to provide incentive for people or business to save or invest. The president's proposal is consistent with the normal practice that has occcurred since the advent of income tax. The reduction in the size of the middle class during the last 10 years and the disparity between wealthy and poor has been dramatic. History does not show much favor for the upper / wealthy class when the spread reaches a tipping point.
Posted by: smullin | September 20, 2011 12:45 PM
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First, Obama overhauled the financial system. This time he is overhauling the tax code. When will this experimentation ends? Hit and run form of leadership will get America into no light at the end of the tunnel. rumar
Posted by: Unknown | September 20, 2011 11:50 AM
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Who would of thought that My generation in its life time would see the beginning of the social revolution in America. And who would believe that the highest office of this nation would be promoting this ideology of socialism. Is the America dream dead? The people of this great country are being led down the road of socialistic ideology by an idiot they elected, who has hand fed them with lies and deception from the beginning. History has repeated itself again. Germany in the thirties with Hitler, Russia and China with Communistic party of the forties, and now this country in the twenty first century with Obama. Maybe the Armageddon that many fear will end this world is not the big bang they expected but, a slow death of man's dreams .... that leads him back to the savaged beast of self destruction that is within us.
Posted by: horsefeathers | September 20, 2011 11:01 AM
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The President says that "the only pledge that matters is the pledge we take to uphold our Constitution". Nice words, but is he really upholding his pledge? His adventure in Libya comes to mind. I am not well verse in all the Provisons of our Constitution as supposedly the President knows very well since he taught Constitutional Laws, but as far as I know, there is no class warfare in any of the Provisions. His idea of levelling the playing field is to "Rob Peter to pay Paul". It would be helpful if the President would tell us how much each of the rich, middle and lower class are contributing to the operation of the government.
Posted by: Linor34b | September 20, 2011 9:41 AM
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If Obama had kept his 2cents out of trying to blow Gadhaffi off the face of the earth(NO LOSS). All the money spent on the missiles could have probably solved half if not all the poverty in this country. How much money will we send to Africa to solve starvation. All it does is create more pirates as killers.
He and Congress should drive around D.C. and around their districts to see what is going on in this country. As we have proved in the past, all our help does is create more people to hate us.
Posted by: KENK | September 20, 2011 9:08 AM
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Once again Obama lies about what he wants to do. Which is raise taxes on the middle class, or wealthy as he claims. Why doesn't he cut spending programs overseas such as rebuilding Mosque in the middle east? Does his plan talk at all about reducing government spending, no, he just wants to raise taxes which does not provide jobs. Higher taxes will make unemployment worse. When will he get it?
Posted by: jplacht | September 20, 2011 8:35 AM
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I want the Immelt Tax Plan where I don't pay anything.
Posted by: RL | September 20, 2011 8:23 AM
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Since both parties want to revise the tax code, why not throw the entire code out and come up with a FAIR flat tax. This would make the payment of tax equitable to the income earned.
Posted by: safechoice | September 20, 2011 8:14 AM
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