Obama’s $4 Trillion Tax-the-Rich Budget Called ‘Envy Economics’
Policy + Politics

Obama’s $4 Trillion Tax-the-Rich Budget Called ‘Envy Economics’

President Obama’s budget request may not exactly be a tax reform bill, but you could make an argument that it promotes tax reform through other means. Many of the elements of the plan are funded by, in some cases, dramatic rewriting of the existing tax code, including the treatment of capital gains, inheritances, and corporate profits held overseas.

In dollar terms, the biggest number appears to be a proposal that would immediately impose a 14 percent tax liability on profits that U.S. companies are holding overseas. Current law allows companies to avoid taxes on overseas earnings until they are “repatriated,” at which point they are subject to a 35 percent corporate tax rate (less taxes paid overseas).

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The move would generate a $238 billion windfall for the Treasury Department, which the Obama budget would direct to a major infrastructure spending program.

The changes to the treatment of overseas earnings don’t end there, though. The proposal would essentially eliminate the ability of U.S. companies to indefinitely avoid taxes on overseas earnings by imposing a 19 percent tax on them that would, in effect, become part of corporations’ annual tax bills.

The proposal makes clear that the president envisions this change as an element in a far-reaching overhaul of the U.S. corporate tax system.

When it comes to the taxation of individuals, the Obama proposal showers considerable benefits on low- and middle-income earners at the cost of the wealthy.

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Among the benefits are:

  • An increase in the childcare tax credit of up to $3,000, including an expansion of eligibility to two-earner families with income up to $120,000.
  • A $500 “second earner” tax credit meant to ameliorate the effective tax penalty paid by a lower-earning spouse when couples file jointly.
  • An expansion of the Earned Income Tax Credit to workers without children and non-custodial spouses.
  • An expansion of the American Opportunity Tax Credit, which provides financial support to students.

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Funding for those benefits would come, in large part, from increases on the taxes paid primarily by the wealthy.

The proposed budget would close what the President has described as a major loophole in the system, called the “stepped-up basis,” which allows appreciated assets to be passed on at death with no capital gains tax.

It would also raise the tax on capital gains to 28 percent, a level not seen since the Reagan administration.

The budget also claims to generate some $640 billion in deficit reduction through the elimination of tax benefits for the wealthy that, according to the administration, “are not efficient in achieving social goals.”

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In remarks delivered at the Department of Homeland Security Monday morning, President Obama defended his proposal by restating a pair of questions he asked during his State of the Union address last month.

“We’ve got some fundamental choices to make about the type of country we want to be,” he said. “Will we accept an economy where only a few of us do spectacularly well? Or are we going to build an economy where everyone who works hard has a chance to get ahead?”

“The budget that Congress now has in its hands is built on those values,” he said.

The proposal received support from Democrats in Congress, including Rep. Chris Van Hollen (D-MD), who is the ranking Democrat on the House Budget Committee.

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“President Obama has put forward a budget that will boost the economy for all by raising the take-home pay of hard-working families – especially those in the middle class and working to join the middle class,” Van Hollen said in a press release.

“We need to make sure that working families, and not just the wealthy and special interests, reap the rewards of our recovery,” he said. “This budget moves us in the right direction. Unfortunately, our Republican colleagues have only offered an agenda that protects the top 1 percent at the expense of everyone else. It’s time to focus on growing an economy that works for 100 percent of Americans.”

Republicans, however, were far less pleased. House Budget Committee Chair Tom Price (R-GA) and Senate Budget Committee Chair Mike Enzi (R-WY) released a joint statement panning the President’s proposal.

“The president is advocating more spending, more taxes and more debt,” they wrote. “As we have seen over the past several years, that approach will yield less opportunity for the middle class and a crushing burden of debt that threatens both our future prosperity and our national security.”

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Pointing out that the president’s proposal never results in a balanced budget, they added, “A proposal that never balances is not a serious plan for America’s fiscal future. Especially when we have to borrow money just to afford the programs we already have.”

When it comes to the budget’s tax proposals, though, nobody’s word carries more weight in Congress than Rep. Paul Ryan, the head of the House Ways and Means Committee, and the man through whom all tax reforms must pass.

Ryan had not released a response to the President’s proposal by noon on Monday, but in comments made to the media over the weekend in response to reports of the proposed tax changes, he denigrated the plan to tax the rich more in order to fund tax relief for the middle class and low earners as “envy economics” – playing on the president’s repeated reference to his plans as “middle class economics.”

While he said that he might be able to find some areas of agreement with the president, when it comes to the president’s proposal for redistributing income through the tax code, Ryan said, “I’m not interested in going down that path with him.”

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