(Bloomberg News) President Barack Obama proposed a budget that calls on Congress to raise the taxes of the highest U.S. earners, multinational corporations and oil and gas companies, reviving revenue provisions that Congress has rejected or brushed aside before.
The budget, released today in Washington, would bring back pre-2001 tax rates on income and capital gains for individuals earning more than $200,000 annually and married couples making more than $250,000. The estate tax would return to 2009 levels with a $3.5 million per-person exemption and a 45% top rate. Under a law Obama signed in December, lower tax rates expire at the end of 2012.
"The president was unable to reverse the Bush tax cuts this past year with a majority in each house of Congress, so it's very difficult to see how he will be successful over the next two years with the Republicans firmly in control of the House," said Neal Weber, managing director in charge of RSM McGladrey's Washington national tax office.
The budget plan includes a proposal that would limit itemized deductions for top earners to 28%, curbing the value of tax breaks for charitable contributions, home mortgage interest and state and local taxes.
Under the budget's assumptions, federal revenue as a percent of the economy would increase from 14.9% in 2010 to 20% in 2021. Part of that increase stems from projected economic growth, not from policy changes.
Republicans criticized the tax increases in the budget.
"This budget fails to preserve the pro-growth policies needed to expand our economy, create jobs and reduce the deficit," said Senator Orrin Hatch of Utah, the top Republican on the Finance Committee. "Keeping pace with its liberal tax- and-spend agenda, the Obama administration hits almost every sector of our economy with a tax hike-energy taxes, taxes on hiring, higher income taxes."
The plan identifies revenue from the itemized deduction cap as a way to offset the first three years of a "patch" that would prevent the alternative minimum tax from expanding. Last year, the administration did not propose offsets for the patch, and Congress has consistently rejected offsets to AMT changes.
By not permanently paying for limits on the reach of this tax, the administration adds to the budget deficit toward the end of the decade.