More On Tax Planningfrom The Advisor's Professional Library
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
President Barack Obama announced Monday his plan to reduce the deficit by more than $3 trillion over the next decade, including $1.5 trillion in tax increases for the wealthy—$800 billion of which would come from the expiration in 2013 of the Bush-era tax cuts for families earning more than $250,000 per year.
During a Monday morning speech at the Rose Garden, Obama said his Economic Growth and Deficit Reduction plan pays for the jobs bill that he presented to Congress last week under the American Jobs Act. There “shouldn’t be any reason for Congress to drag its feet,” on passing the jobs bill. “I’m ready to sign a bill,” he said. The $3 trillion in deficit cutting on top of the roughly $1 trillion in spending cuts that the president already signed into law in the Budget Control Act amounts to $4 trillion in deficit cuts over the next decade.
Obama’s deficit reduction proposal includes $580 billion in adjustments to health and entitlement programs, including $248 billion to Medicare and $72 billion to Medicaid. The president pledged that he would not allow Medicare to be “turned into a voucher program,” adding that Social Security “faces long-term challenges and we will have to work to strengthen it.”
Obama promised to veto any plan that relies solely on spending cuts to reduce the deficit and fails to include revenue increases through higher taxes on the wealthy. During his speech, Obama pledged to “scour” the budget, reform government spending and make modest adjustments to Medicare and Medicaid. But, he said, to help the nation’s fiscal situation “we cannot rely entirely on cuts. If we are going to make spending cuts, then it’s only right to ask everyone to pay their fair share.”
His plan, Obama said, eliminates tax loopholes for the wealthiest tax payers and corporations, “tax loopholes that middle America doesn’t get.” The nation, he said, “can’t afford these special low rates for the wealthy when we are running these big deficits,” adding that the Bush tax cuts were meant to be temporary. The president also said he would work with Congress to help reform the tax code.
Jack Lew, director of the Office of Management and Budget, said that taking the steps outlined in Obama’s plan “would bring the country to a place, by 2017, where current spending is no longer adding to our debt, debt is falling as a share of the economy, and deficits are at a sustainable level.”
Under Obama’s plan, Lew said the president is calling on the Joint Committee on Deficit Reduction to undertake comprehensive tax reform under five key principles. Reform should: 1) lower tax rates; 2) cut wasteful loopholes and tax breaks; 3) reduce the deficit by $1.5 trillion; 4) boost job creation and growth;
But Republican lawmakers were quick to voice their disapproval of Obama’s plan. Sen. Orrin Hatch, R-Utah, ranking member of the Senate Finance Committee, said Obama’s plan is “crass class warfare [and] a refusal to reform our broken entitlements.” Tax hikes “on job creators,” he continued, “isn’t a solution to Washington’s spending problem and won’t help our ailing economy or the 14 million Americans who are out of work.”
Said Hatch: “The president’s political rhetoric hurts our ability to effectively streamline our burdensome tax code that has put America at a competitive disadvantage around the world. It’s time for a new approach that puts the American people back in charge built on a simpler, fairer tax code, reformed entitlements, and reduced federal spending.”