While President Barack Obama's $3.55 trillion budget proposal, presented on February 26, would put a heavier tax burden on wealthy taxpayers--those with incomes exceeding $250,000--and corporate America to raise revenue come 2011, it also subjects the nation's financial markets to more stringent regulatory oversight and increases the Securities and Exchange Commission's funding by 13% next year, boosting its 2010 budget to more than $1 billion.
Under the budget proposal, Obama would reduce the value of itemized tax deductions for Americans in the top income tax bracket, 35%, and many of those in the 33% bracket, starting at $250,000 in annual income for a married couple. As scheduled under current law, Obama would also allow the 2001 and 2003 tax cuts for the highest income brackets to expire at the end of 2010. The budget proposal would reinstate the 36% and 39.6% tax brackets, and institute a 20% top tax rate on capital gains and dividends. Capital gains taxes on small businesses would be eliminated.
According to an analysis of the budget released by Dave Walker, former Comptroller General and current president/CEO of the Peter G. Peterson Foundation, the administration would extend its Make Work Pay tax credit, expand earned income tax credit, create a saver's credit together with a provision to automatically enroll employees in IRAs and 401(k)s, and provide an "American Opportunity Credit." Upper income taxpayers (those earning above $200,000 to $250,000) would see a 20% rate on capital gains and dividends (currently 15%), Walker says, and a phase-out of the personal exemption and limitation on itemized deductions (in addition to the limitations imposed to help finance health care reform).
The proposal would also index the Alternative Minimum Tax (AMT) to inflation, which would provide a long-term remedy to the 20 million taxpayers that would be hit with the tax.
As for health care, Obama has called for a $634 billion reserve fund to pay for health care initiatives, which will be financed by the higher taxes levied on those higher-income taxpayers and on corporations. "Though the specifics of the new reserve fund will need to be very carefully considered, the President's proposal clearly acknowledges that health care reform will only be possible if we are able to reach common ground on how to finance it," said James Klein, president of the American Benefits Council (ABC) in Washington.
According to Walker, the health care reserve fund earmarks $318 billion in new revenues from reducing itemized deductions and increasing Medicare Part D drug benefit premiums for high-income taxpayers and $316 billion in proposed Medicare and Medicaid savings for comprehensive health care reform. "The amounts are placeholders," he says in an analysis of the budget. "The assumed savings amounts appear to be generally consistent with CBO [Congressional Budget Office] estimates of similar provisions. The Administration does not put forward a specific health care reform proposal. Nor does it specify any mechanism to assure that the cost of reform would be deficit neutral as the Administration's budget assumes."
As for retirement planning, Obama would expand the Saver's Credit and facilitate enrollment in workplace plans and IRAs. Klein says ABC hopes "that the absence of defined benefit funding relief in the president's fiscal year 2010 budget indicates the Administration's commitment to providing such relief even before the budget is considered by Congress."
Since the beginning of the economic downturn, Klein continued, "the Council has advocated defined benefit funding relief to sustain traditional pension plan sponsorship and aid struggling companies. Additional relief is still urgently needed to preserve plans, benefits and jobs. "
To view a PDF of the entire budget proposal, please click here.