Revenue Proposals in FY 2013 Budget Anything but a Surprise
One doesn’t need an inside source at the White House or an advance copy of this year’s budget to know what the bulk of the proposed tax provisions in the Obama administration’s 2013 budget proposal are likely to be. The debt ceiling deal, recent rhetoric at campaign stops, and the president's State of the Union speech have painted a good portrait of what we can expect to see on Feb. 13.
The biggest question is how the president intends to stay under the discretionary spending caps put in place by last year’s Budget Control Act. Analysts will be looking for more specifics on the president’s call for multinational companies to pay the equivalent of an alternative minimum tax and waiting for the Office of Management and Budget (OMB) to estimate the revenue this provision might bring in.
Other revenue proposals will call for tax reforms to ensure the wealthy pay their fair share and to close unnecessary business tax loopholes.
The president has been able to persuade Congress to pass some of his more important tax cut proposals for families and individuals, but other cuts either have or will expire shortly. The refundable Making Work Pay Tax Credit, which was part of the Recovery Act, expired in 2011. The Payroll Tax Holiday, part of the two-year extension of the Bush tax cuts the president signed into law at the end of 2010, reduced each worker’s federal payroll tax deductions by two percent. But the payroll tax holiday is set to expire at the end of February, so the president’s budget is likely to call for an extension of the tax cut through the remainder of 2012.
The American Opportunity Tax Credit, also part of the Recovery Act and continued through the Bush tax cut extension, is set to expire at the end of the year. The opportunity tax credit, known as the Hope Credit, reimburses students or their families for college tuition and related higher education expenses. Look for the president to call for an extension of the Hope Credit as he has in his last two budgets.
Obama's budget is also likely to call for the expiration of the Bush tax cuts at the end of 2013, but surely nothing will happen until the lame duck congressional session after the November elections. The president previewed his argument during his recent State of the Union Address, asking, "Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else – like education and medical research; a strong military and care for our veterans?" Emphasizing the choice, Obama noted, "We can’t do both."
We can also expect proposals to raise the exceptionally low estate tax back to its 2009 levels and to raise the capital gains tax rate from 15 percent to at least 20 percent.
The FY 2013 budget proposal will also call for enactment of the so-called "Buffett Rule." Obama first formally introduced the idea in September 2011, saying, "No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay."
The president presented a tweaked version of the Buffet Rule at the State of Union, combining closure of the carried interest loophole with a ratcheting-up of the alternative minimum tax for individuals making $1 million a year or more, to 30 percent. Sen. Sheldon Whitehouse (D-RI) has already introduced this iteration of the Buffett Rule as legislation.
In addition to proposed changes in the tax code related to individual income, the administration is likely to call for closing a number of corporate tax loopholes. The White House has continually advocated for ending tax preferences for oil companies and the so-called Last-In-First-Out method of accounting for businesses; expect that advocacy to continue.
The president has also called for financial institutions to pay a financial crisis responsibility fee since he entered office. In his State of the Union address, President Obama reiterated that call but claimed his administration would now be billing the proposal as a way to help pay for mortgage relief, rather than covering the cost of the Troubled Asset Relief Program (TARP), as it was original devised.
With so many items left on the president’s to-do list, it’s hard to take seriously Republican revisionist arguments that Congress gave President Obama everything he wanted during his first two years in office. Had this actually happened, our national fiscal situation would have been quite a bit rosier.