Taxes on high-income earners would rise by nearly $1 trillion over the next 10 years, under the budget plan put forward by President Barack Obama on Monday.
The bulk of that increase comes as tax cuts enacted under President George W. Bush expire at the end of 2010.
The top two income-tax rates, which affect people earning more than $200,000 a year, or $250,000 for married couples, will return to 36% and 39.6%, from 33% and 35% now.
Under the budget plan, capital gains and dividends would be taxed at 20%, up from 15% now, for people at those income levels.
Limits on upper-income people’s ability to claim personal exemptions and itemized deductions will also snap back next year, without any action needed from Congress.
A look at how the Obama administration is counting on bringing in revenue and spending it in fiscal 2010.
Budget Stepping Stones
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But as in last year’s budget, Mr. Obama proposed Monday to go further by limiting the value of those benefits, which include deductions for mortgage interest and some charitable contributions. The highest-income earners under current law can lower their taxes by up to 39.6% of those deductions; under Monday’s proposal, that would be reduced to 28%.
The bid to lower the limit on itemized deductions stalled in Congress last year amid strong resistance from Democratic and Republican lawmakers. It is also opposed by a battery of interests including Realtors and charities.
Fund managers would see their partnership profits taxed at ordinary income rates, rather than the lower capital-gains rate, under Mr. Obama’s proposals. That plan—also proposed in last year’s budget—passed in the House but has had trouble getting off the ground in the Senate, where lawmakers of both parties worry that a tax increase on so-called carried interest could harm entrepreneurship and investment. Supporters of the president’s plan say it is unfair that fund managers’ income should be taxed at a lower rate than wages.
Mr. Obama proposed reinstating the estate tax, which was repealed for one year on Jan. 1, at the levels in effect last year—or 45%, with an exemption for estate wealth under $3.5 million—and extending those rates permanently.
5:13Taxes on the wealthy would rise by almost a billion dollars over the next 10 years under a proposed budget plan announced today by President Obama. As Dow Jones Newswires’ Martin Vaughan explains to Kelsey Hubbard on the News Hub, the Obama budget would allow tax cuts enacted under the Bush administration to expire.
He proposed putting limits on the use of family trusts that have helped wealthy families lower their estate-tax liabilities, which the White House estimates would increase government revenue by $23.7 billion over 10 years.
Mr. Obama would extend the Bush tax cuts, including the 15% rate on capital gains and dividends, for single taxpayers making less than $200,000 and couples earning less than $250,000.
But he dropped a request to make permanent the payroll tax credit that fattened worker paychecks by $400 per person in 2010. In Monday’s budget blueprint, Mr. Obama proposed extending only through 2012 that credit, which was his signature tax-cut proposal for middle-class workers during his campaign.
Other tax cuts aimed at helping low- and middle-income people, released ahead of Monday’s broader announcement, were also proposed. Those include a doubling of the child-care tax credit, and an expansion of the federal matching contribution for low-income savers.