Below is some of the tax changes President
Obama want to have.
Treasury Releases Obama Administration’s
FY 2011 Budget
The president released his FY11 federal budget proposal this past Monday.
The “Green Book” (as the document is called by Beltway insiders)
weighs in with a record overall price tag of $3.8 trillion. As expected,
Obama laid out a number of his priority tax-related provisions, though
people need to keep in mind that Congress, not the president, writes
budget and spending bills. At the end of the day, the Green Book, while
detailed and robust, is the president’s wish list:
- The 2001 and 2003 Bush tax cuts
are scheduled to expire by 2011. Not surprisingly, Obama is sticking
to his call to let those tax cuts expire for high-income households
($200,000 for individuals; $250,000 for families). This provision would
raise the top two individual income tax rates to where they were in
2001, before passage of the Bush tax cuts. The 33% bracket would become
36% and the 35% bracket would rise to 39.6%. In addition, the long-term
capital gains tax rate for these higher earners would increase to 20%
(up from 15% currently). The provision would also reinstate so-called
PEP and Pease phaseouts for high-income households, essentially reducing
their eligibility for a raft of personal exemptions.
- The president proposes to cap
at 28% the rate at which high-income households can itemize deductions.
Some people may remember that President Obama attempted last year, without
success, to move this proposal. There were many objections in Congress,
including the complaint that if this proposal is enacted, charitable
giving would be adversely affected. Those objections will not have gone
away in the interim; in addition, the real estate lobby is bound to
be up in arms to oppose such a cap on mortgage interest deductions.
If the measure gains any traction at all this year, it seems likely
that Congress would limit the cap to apply only to certain types of
deductions, thereby dampening (probably significantly) its intended
revenue-raising effect.
- The president's budget assumes
the estate tax (currently repealed) will be made permanent at a $3.5
million exemption level per person and a top rate of 45% on taxable
estates. While it is much more generous than the repealed law (providing
for a $1 million exemption level and a 55% top rate starting in 2011),
it is much less generous than a proposal getting bipartisan support
in the Senate. The Senate proposal offers a $5 million exemption level
per person and a top rate of 35%. Early rumblings this year point to
the likelihood of the Senate enacting estate tax reform that will apply
retroactively to January 1, 2010.
- There are currently capital
gains tax breaks in place for investors in small businesses, defined
as companies with gross assets of $50 million or less. But the president
is proposing to eliminate the capital gains tax altogether on stock
in small businesses held for at least five years. The proposed measure,
however, would only apply to stock acquired after Feb. 17, 2009.
- The president's budget assumes
all the 2001 and 2003 tax cuts will be made permanent for everyone making
less than $200,000 ($250,000 for couples). Given that this range of
income defines most Americans, today's rates on income tax, capital
gains and dividends would remain the same for most filers.
- The administration assumes in
the president's budget that Congress will permanently change the parameters
of the AMT. This change, if adopted, would shield tens of millions of
middle-income families from having to pay the tax, which was originally
intended only for the highest earners.
- The budget calls for a one-year
extension of the Making Work Pay tax credit created in last year’s
stimulus bill.
- The stimulus package temporarily
expanded the Earned Income Tax Credit for very low-income families with
three or more children. President Obama wants to make that increase
permanent.
- Under the president's budget,
families making less than $85,000 would be able to claim nearly double
the child and dependent care tax credit for which they currently qualify.
