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.
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“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.”