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We are still analyzing the President’s latest budget plan, which was released today, but there are a few things we can say right now.
Unfortunately, President Obama has once again proposed to make permanent the vast majority of the Bush tax cuts. The administration manipulates baselines to pretend that allowing the expiration of a portion of the Bush tax cuts (which are already scheduled to expire under current law) raises revenue. The budget plan would actually make permanent 78 percent of the Bush tax cuts at a cost of $3.4 trillion over the next decade.
The budget plan includes other tax provisions, including about $1 trillion in tax increases and half a trillion in tax cuts. Of course, this means that the budget plan would not come close to raising enough revenue to pay for the parts of the Bush tax cuts that would be extended.
In some ways this budget plan is an improvement over President Obama’s previous budget plans. For example, while the President would still extend the Bush income tax cuts for the first $250,000 of income for married couples and the first $200,000 of income for unmarried taxpayers, his previous budget plans had partially extended the tax cut for stock dividends even for incomes in excess of those amounts. His decision this time around to allow stock dividends received by the rich to be taxed just like any other income is a step in the right direction.
Certain questions remain to be answered. For example, the Buffett Rule is sensible in concept but it’s unclear how the administration would implement it. The budget document says that the President “is proposing that the Buffett rule should replace the Alternative Minimum Tax.”
It’s unclear that the Buffett Rule could raise enough revenue to offset the cost of repealing the AMT. Even if it did, that would seem to mean that no new revenue would be produced because repeal of the AMT would cancel out the revenue effect of enacting the Buffett Rule.
Another area where more detail is needed is corporate tax reform. The administration is said to be planning a more detailed approach to overhauling the corporate income tax in a way that is revenue-neutral.
The administration should not bother attempting the overhaul the corporate income tax unless this would help resolve one of the biggest challenges we have — which is raising revenue to pay for public investments.