With debt ceiling talks getting more attention, the issue of tax increases will again be on the table. If you thought last year’s massive tax increase satisfied the “tax the rich” proponents, you are wrong again.
Here is a summary of the tax increases President Obama included in his 2014 budget. Although these tax increases will be resisted, this is the list of the increases that likely will get the greatest initial attention. They are listed in order of size of the revenue increase. Items 1, 2, 3, 6 and 7 are directed solely at upper-income persons.
- Cap itemized deductions beyond last year’s change (which provided a total dollar limitation) by allowing the effect of remaining itemized deductions to be applied at the maximum of the 28% rate (instead of the taxpayer’s actual marginal tax rate). This penalty would apply to married taxpayers earning more than $223,050 ($183,250 for singles) in 2013. This change is estimated to raise taxes $529 million over ten years.
- Changing the way tax brackets (and thus tax rates) are adjusted for inflation. This would raise $100 billion over ten years.
- Increase death (aka, estate) taxes by increasing the rate from 40% to 45%, and decreasing the exemption from $5 million to $3.5 million per decedent. This would raise $79 billion over ten years.
- Raises the tobacco tax, for an estimated 10-year increase of $78 billion.
- Increase taxes on banks, supposedly to pay for the cost of the TARP lending that occurred over the last recession. This would raise $78 billion over ten years.
- Imposing a minimum 30% tax rate under the so-called Buffet Rule for taxpayers with Adjusted Gross Income over $1 million after the itemized deduction for charitable giving. Because the vast majority of upper income taxpayers already face tax rates in excess of 30%, this change affects only those with large capital gains incomes, and raises a relatively small $53 billion over ten years.
- Reduces the amount that those who already have larger 401(k) and IRA balances can contribute to these retirement saving accounts. Together with the next item, this would raise $67 billion over ten years.
- Raise the unemployment tax paid by employers.
In total, the tax increases (which include some smaller items not listed above) total $1.1 trillion for ten years.