A new report from Citizens for Tax Justice explores the tax proposals included in the federal budget outline that President Obama submitted to Congress on February 1. Like the budget he submitted last year, it is a vast improvement over the policies of the Bush years and continues to outline a progressive reform agenda.

But, also similar to last year, the President’s budget could be greatly improved with more aggressive policies to raise revenue. Over the coming decade, the President proposes to cut taxes by $3.5 trillion. We include in this figure the cost of extending most of the Bush tax cuts and relief from the Alternative Minimum Tax (AMT) as well as additional tax cuts that President Obama proposes.

His budget would offset a portion of this cost with provisions that would raise $760 billion over a decade by limiting the benefits of itemized deductions for the wealthy, reforming the U.S. international tax system and enacting other reforms and loophole-closing measures.

The report concludes that the federal government should collect at least as much revenue as the President proposes in order to avoid larger budget deficits. There are two bare minimum requirements for Congress to achieve this. First, Congress must not extend any more of the Bush tax cuts than President Obama proposes to extend. Second, Congress must raise at least as much revenue as President Obama has proposed ($760 billion over ten years) through loophole-closers and new revenue measures.

Read the full report.

 

"From some on the right, I expect we'll hear a different argument -– that if we just make fewer investments in our people, extend tax cuts including those for the wealthier Americans, eliminate more regulations, maintain the status quo on health care, our deficits will go away.  The problem is that's what we did for eight years."  (Applause.)  "That's what helped us into this crisis.  It's what helped lead to these deficits.  We can't do it again."

President Obama spoke these words in his State of the Union address on Wednesday night, after pledging to enact an agenda that will create jobs and tackle our long-term budget deficit. He did a good job of explaining that the budget deficits that exist today are the result of deficit-financed tax cuts, two deficit-financed wars, and a major recession all occurring before he entered the White House.

But one has to wonder if President Obama is gently bearing left at a time when any sensible directions would call for a sharp left turn.

The Bush Tax Cuts

He remains committed to extending the Bush income tax cuts for the 98 percent of taxpayers who have adjusted gross income (AGI) below $250,000 (or below $200,000 for an unmarried taxpayer). The budget document released by the administration last year showed, in a convoluted way, that this would cost $1.88 trillion between now and 2019. His proposal to partially extend the Bush cut in the estate tax (making permanent the estate tax rules in effect in 2009) would cost another $576 billion over the same period, for a total of about $2.45 trillion.

The estimated costs of these proposals may be different in the budget to be released next week (since all the projections change at least somewhat in response to developments in the economy). But make no mistake, the cost of extending most of the Bush tax cuts far exceeds the savings the President hopes to achieve with his proposed spending freeze (which will actually cut spending if one accounts for inflation and other factors).

Cutting Non-Security Discretionary Programs

The administration is reported to believe $250 billion can be saved from the spending freeze, which would last three years but would not apply to national security, Medicare, Medicaid, or Social Security. The first problem is that these exempt categories of spending, along with interest payments on the national debt that cannot be avoided, make up 70 percent of the federal budget. Americans love to complain about wasteful government spending, but few realize that, once you eliminate those categories of spending that are very popular with the public, there's not a whole lot left to cut. The non-security discretionary spending that is left has come under increasing pressure in recent years since it's the only part of the budget lawmakers feel comfortable attacking.

The second problem is that cutting back spending when the economy may still be weak could prolong our downturn. Progressive observers have warned that the Roosevelt administration's decision to stop stimulating the economy and focus on deficit-reduction plunged the country back into a deeper depression in 1937.

For their part, administration officials have explained that they are not proposing an across-the-board freeze. Rather, they will identify particular types of spending that represent wasteful giveaways to special interests rather than public services that people depend upon.

Even if that's true (and the jury is still out on that), it's still peculiar that taxes aren't getting more attention. This is the third problem with the President's approach. The need for higher taxes is like an 800 pound elephant in the room that everyone is trying to ignore, even if they vaguely acknowledge that Bush's tax cuts got us into this mess. Does a family with an income of $190,000 really need every cent of their Bush tax cuts? Do families with $7 million in assets really need to be fully exempt from the estate tax? The President's tax proposals would have us believe so.

Steps in the Right Direction

The President certainly wants to move in the right direction, as was evident in various parts of his speech. He reiterated his proposal to charge a fee on risk-taking by the largest banks, which would raise $90 billion over a decade according to the administration. We've argued before that this is entirely reasonable. The institutions affected know they have an implicit guarantee from the government and are prone to put the entire economy at risk as a result. It makes sense to demand that they pay up in proportion to their risk-taking.

The President also reaffirmed his desire to do something about offshore profit-shifting by corporations. The proposals he made last year along these lines would raise $200 billion over a decade and would be extremely important, as we have explained in detail, in preventing U.S. corporations from shifting their profits to other countries.

Sometimes this shifting means companies actually move jobs and operations offshore, but other times it involves accounting gimmicks and transactions that exist only on paper. Either way, Americans lose tax revenue for no good reason other than that Congress is afraid to take on the lobbying power of multinational corporations.

America has a budget problem that is long-term in nature. The money we spend this year or next year to stimulate the economy has little impact on the long-term deficit. Reforming our tax system permanently, however, is an important part of the long-term solution.

The National Association of Realtors (NAR) and other groups representing the real estate industry have been a case study in special interest politics for some time. A quick glance a the Congressional Joint Committee on Taxation's tax expenditure report reveals that tax breaks related to housing cost over $100 billion a year, but that's not enough to satisfy NAR and its followers.

The Battles Over the "Carried Interest" Loophole

Two years ago, the Real Estate Roundtable (of which NAR is a member) hired Douglas Holtz-Eakin to defend the "carried interest" loophole, which basically allows those investing other people's money to pretend that they put up their own money, thus entitling them to pay taxes at the low capital gains rate of 15 percent rather than the regular rate of 35 percent that other highly compensated workers pay. (CTJ released a fact sheet debunking Holtz-Eakin's arguments.) The Obama administration continues to support closing the carried interest loophole.

The Homebuyer's Credit

In the last year of the Bush administration, the real estate industry managed to get Congress to adopt, as part of the economic stimulus law enacted in 2008, a $7,500 homebuyer credit that taxpayers would have to pay back to the IRS. This, year, they persuaded Congress to upgrade that to a $8,000 homebuyer credit that does not have to be paid back and that is available to taxpayers under certain income limits if they purchase a home before the end of November of this year.  

The homebuyer tax credit was estimated at the time of enactment to have a cost of $6.6 billion, but is actually on track to cost more than twice that.

Since the economic crisis was caused by inflated home prices, it is not at all clear how subsidies provided through the tax code to boost home prices could possibly be good policy. 

Ted Gayer at the Brookings Institution has written that:

"The tax credit is very poorly targeted. Approximately 1.9 million buyers are expected to receive the credit, but more than 85 percent of these would have bought a home without the credit. This suggests a price tag of about $15 billion – which is twice what Congress intended – for approximately 350,000 additional home sales. At $43,000 per new home sale, this is a very expensive subsidy."

Perhaps most alarming is the possibility that the homebuyer credit could become another "tax extender," the term used by Congressional staff and lobbyists to describe tax breaks that are ostensibly in effect for only a year or two, but which everyone believes Congress will extend again and again. NAR is, of course, pushing for Congress to extend the homebuyer credit.

Health Care

Perhaps the worst example of special interests fighting to block the common good is the real estate industry's interference in Congress's attempts to reform health care. Early this year, the Obama administration proposed to limit the value of itemized deductions for wealthy taxpayers to 28 percent as a way to raise revenue that would partially fund health care reform. CTJ found that this would affect only the richest 1.3 percent of taxpayers and would merely reduce some of the unfairness that occurs when Congress subsidizes certain activities (like home ownership and charitable giving) through the tax code. NAR, naturally, would have none of it, since this proposal would curtail the savings received by high-income taxpayers when they claim the itemized deduction for home mortgage interest.

In fact, NAR recently has come out against a much more scaled back version of this proposal, which would merely cap itemized deductions at 35 percent.

Currently, the top income tax rate is 35 percent, so the richest Americans can save, at most, 35 cents for each dollar of itemized deductions they claim. But the Bush tax cuts, which lowered the top income tax rate from 39.6 percent to 35 percent, will expire at the end of 2010. That means that in 2011, under current law, each dollar of itemized deductions claimed by a very wealthy person could result in almost 40 cents of savings. Capping itemized deductions at 35 percent would therefore merely freeze in place their current value after the Bush tax cuts expire and rates go back up.

NAR recently issued a statement saying that it opposes even this scaled back proposal to limit itemized deductions and that it "rejects in the strongest possible terms any proposal that would limit the deductions for mortgage interest and real property taxes." NAR is unabashed in its defense of subsidies provided through the tax code for families in the top income tax bracket.

Do the Realtors Oppose the Bush Tax Cuts?

But if the realtors believe that the very rich should receive 39.6 cents for each dollar of itemized deductions they claim, that seems to imply that they think the top income tax rate should revert back to the pre-Bush level of 39.6 percent. Their position seems to be that it is unacceptable for the richest Americans to only save 35 cents for each dollar they claim in itemized deductions. The only way for that number to go back up from 35 to 39.6 is for President Bush's reduction in the top rate to expire. Surprisingly, NAR and CTJ seem to have one position in common, albeit for vastly different reasons.

The Bush Tax Cuts for the Richest Five Percent Cost More than the President's Health Care Proposal

During his address to a joint session of Congress Wednesday night to explain his health care proposal, President Barack Obama noted that his plan would cost less than the Bush tax cuts for the wealthy, a fact demonstrated in a report released earlier this week by Citizens for Tax Justice.

"Add it all up, and the plan I'm proposing will cost around $900 billion over ten years - less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration."

President Barack Obama, Address to Joint Session of Congress, September 9, 2009

A recent report from Citizens for Tax Justice finds that the Bush tax cuts cost almost $2.5 trillion over the decade after they were first enacted (2001-2010). Preliminary estimates from the non-partisan Congressional Budget Office show that the House Democrats' health care reform legislation is projected to cost $1 trillion over the decade after it would be enacted (2010-2019). President Obama said during his address to Congress that his health care plan would cost a little less than the House plan, at "around $900 billion over ten years."

As the President said, even the Bush tax cuts "for the wealthiest few" cost more than his health care plan. The direct cost of the tax cuts for just the richest five percent of taxpayers over the 2001-2010 period is $979 billion. (The cost is even greater if one includes interest payments that resulted because the Bush tax cuts were deficit-financed.) In 2010, when all the Bush tax cuts are finally phased in completely, an incredible 52.5 percent of them will go to this wealthiest five percent of taxpayers.

Oddly, many of the lawmakers who claim to be concerned about the cost of the President's health care plan are the same lawmakers who supported the Bush tax cuts, despite their much greater costs.

Read the new report from Citizens for Tax Justice.
 
These figures make clear that costs cannot be the real concern of lawmakers who oppose health care reform and yet supported the Bush tax cuts. Their position seems to be that showering benefits on the wealthiest five percent of taxpayers and leaving the bill for future generations is preferable to making health care available for all at a much lower cost and paying that cost up front. That demonstrates a different set of priorities than most Americans have, but it doesn't demonstrate much concern about costs.

Approval Marks a Major Step Towards Enacting President's Agenda

On Wednesday, both the House and Senate approved a Congressional budget resolution for fiscal year 2010 that paves the way for several of the President's major initiatives. The resolution allows Congress to make new investments in education and clean energy and puts in place procedures that will make it easier for Congress to enact comprehensive health care reform. It also allows Congress to extend the Bush tax cuts for all but the richest Americans.

The budget resolution allows for about $3.5 trillion in federal spending in fiscal year 2010 and includes important tax and spending provisions related to years after that. It is not a law and is not binding, but puts in place caps on the spending that Congress appropriates each year, sets targets for tax and spending changes and includes certain procedural changes that make it more likely Congress will meet these goals.

Tax Cuts Extended for All but the Rich

For example, the budget resolution allows Congress to reduce revenues by a certain amount by extending the Bush income tax cuts. It is understood that the amount of revenue-reduction allowed would be sufficient to extend the Bush tax cuts for those with incomes below $250,000. It also allows for Congress to reduce revenues by preventing the Alternative Minimum Tax (AMT) from expanding as it is scheduled to under current law. Similarly, it allows Congress to extend the estate tax rules in effect in 2009 instead of allowing the estate tax to revert to the rules put in place during the Clinton years, before Bush's cuts in the estate tax were enacted.

The resolution allows for Congress to enact these tax cuts without finding new revenue to pay for them -- on one condition, which is that Congress enacts a statutory pay-as-you-go (PAYGO) rule that will (in theory) prevent Congress from enacting any more legislation that will increase the deficit. That means that any additional tax cuts (say, an extension of the Making Work Pay Credit that was enacted for two years as part of the economic stimulus package) would have to be combined with revenue-raising provisions to offset the costs.

Predictably, allies of former President George W. Bush have expressed horror that Democratic leaders and President Obama wish to extend the Bush tax cuts for 97.5 percent of Americans rather than 100 percent. The Democrats and the President would allow the Bush tax cuts to expire for singles with incomes over $200,000 and married couples with incomes over $250,000 (which make up roughly the richest 2.5 percent of taxpayers).

For their part, House Republicans used the budget debate to demonstrate to the public just how lopsided the tax code would be if their goals were ever realized and just how much government would have to shrink because of the revenue losses that would result. Earlier this month, the ranking Republican on the House Budget Committee presented his tax and spending plan which would cut and privatize Medicare, convert Medicaid into limited block grants to states, repeal the recently enacted economic stimulus law and deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs.

Citizens for Tax Justice published a report concluding that under this GOP plan, over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes than they would under the House Democratic plan in 2010, while the richest one percent of taxpayers would pay $75,000 less, on average.

Final Budget Leaves Out the Senate's Outrageous Estate Tax Cut

Progressives scored a victory when Democratic leaders agreed to exclude from the final budget an amendment adopted by the Senate during its budget debate on April 2 which would slash the estate tax to benefit multi-millionaires. Before the Senate approved this amendment, Majority Leader Harry Reid (D-NV) said, "It is so stunning, so outrageous that some would choose this hour of national crisis to push for an amendment to slash the estate tax for the super wealthy." His common sense view carried the day as negotiators hammered out the final resolution.

The tax cuts enacted under President Bush in 2001 scheduled a gradual repeal of the estate tax, with the amount of assets exempted from the tax gradually increasing over a decade and the tax rate on estates gradually dropping until the estate tax would disappear entirely in 2010. Like almost all of the Bush tax cuts, this cut in the estate tax expires at the end of 2010, meaning that rules scheduled under President Clinton would come back into effect in 2011.

The budget resolutions passed out of the House and Senate budget committees in March both assumed that the estate tax rules in place in 2009 would be made permanent, meaning the Bush estate tax cut would be partially made permanent but the estate tax would not disappear entirely in 2010. The Center on Budget and Policy Priorities released a report finding that about 99.7 percent of estates would be untouched by the tax under this proposal.

Incredibly, 51 Senators voted in favor of the amendment offered by Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) to cut the estate tax even more than this. The 2009 estate tax rules exempt the first $7 million of assets passed on by a married couple (as well as assets they leave to charity) and tax the rest at a rate of 45 percent. The Kyl-Lincoln amendment called for a $10 million exemption for married couples and a 35 percent rate.

Taking Steps Towards Enacting the President's Priorities

Progressives scored another victory in the area of health care. House and Senate leaders decided to include in the final budget resolution a mechanism known as "reconciliation" which will allow the Senate to enact health care reform and higher education loan changes with a simple majority vote.

The practice of filibustering legislation in the Senate has, over the years, turned into a default rule that three fifths the Senate's members must agree to pass a bill. This means that legislation supported by Senators representing a majority of Americans is often blocked. Many advocates fear that this is exactly what could happen to health care reform and many other of the President's important initiatives.

Reconciliation is a way around this obstacle. A budget resolution can include reconciliation instructions specifying that committees will pass legislation that can then pass the full House and Senate under a streamlined process. In the Senate, that streamlined process means that the bill can be passed with just 51 votes.

The particular version of reconciliation included in this budget is optional, meaning Democratic leaders will resort to using it only if bipartisan consensus proves elusive.

Several Republican Senators, and some Democratic Senators, have taken the view that majority rule is undemocratic, and have called reconciliation a partisan ploy to "ram through" the President's agenda. (The idea of the Senate moving too quickly is a little hard for any Hill observer to understand.) More importantly, enacting health care reform will require Congress to raise a great deal of revenue, and finding a large bipartisan majority for that might be a challenge.

Finally, some have complained that reconciliation is only to be used for deficit-reduction, but this is entirely unconvincing because these are largely the same members who voted in favor of reconciliation bills during the Bush years that actually increased the deficit by cutting taxes.

New Data from Citizens for Tax Justice Shows that the U.S. Tax System Is Not as Progressive as You Think

Many politicians, pundits and media outlets have recently claimed that the richest one percent of American taxpayers are providing a hugely disproportionate share of the tax revenue we need to fund public services. New data from Citizens for Tax Justice show that this simply is not true. CTJ estimates that the share of total taxes (federal state and local taxes) paid by taxpayers in each income group is quite similar to the share of total income received by each income group in 2008.

- The total federal, state and local effective tax rate for the richest one percent of Americans (30.9 percent) is only slightly higher than the average effective tax rate for the remaining 99 percent of Americans (29.4 percent).

- From the middle-income ranges upward, total effective tax rates are virtually flat across income groups.

Read the fact sheet.

A new report from Citizens for Tax Justice answers many of the questions that are frequently asked about taxes during this time of year and clears up the old myths that are still accepted by many as fact. Here is just a sample of some of the questions that are answered:

Question: Does President Obama plan on raising our taxes?

Question: There might be cyclical downturns and upturns in the economy that no one can control, but don't tax cuts help us climb out of downturns a little faster?

Question: What are "tax havens" and why are some people in an uproar over them?

Question: What does it matter to me if someone else is hiding their income from the IRS?

Read the report.

As we approach April 15th, one complaint we often hear is that Americans who work hard and become successful have to pay over a third of their income in federal income taxes. But a recent report from the Internal Revenue Service (IRS) shows that this is not remotely true.

As a new CTJ fact sheet explains, the IRS data show that the federal income tax rates paid by the highest-income Americans have dropped substantially since 2000, largely due to cuts in the tax rates on capital gains and dividends pushed through by the Bush Administration. While income from work (salaries and wages) is subject to rates as high as 35 percent, income from investments (long-term capital gains and stock dividends) is taxed at only 15 percent.

The IRS report shows that in 2006 (the latest year for which data are available), the 400 richest income tax filers paid just 17.2 percent of their adjusted gross income (AGI) in federal income taxes. That is down from 22.3 percent in 2000, and is less than half of the top statutory income tax rate of 35 percent.

Read the CTJ fact sheet.

The U.S. House of Representatives and the U.S. Senate both approved budget resolutions on Thursday that move Congress a step closer to enacting President Obama's agenda, without being quite as bold or explicit as the budget outline released by the President in late February. Both resolutions would spend about $3.5 trillion in 2010 and include non-binding, but important, provisions affecting spending and revenues in years after that. As lawmakers from both chambers leave Washington for their spring recess, behind-the-scenes negotiations will likely pave the way for a House-Senate conference to take place upon their return to iron out the differences between the two resolutions. On some key issues like estate tax and health care, the House has made wiser choices that will hopefully be maintained in the final budget resolution.

The basic thrust of many of the tax policies embodied in the budget resolutions mirror the President's proposals. Both assume the extension of the Bush income tax cuts for everyone except taxpayers with incomes above $200,000 (or $250,000 for married couples). Taxpayers above these thresholds are affected by the top two income tax rates, which would revert to 36 and 39.6 percent. Both resolutions would extend the "AMT patch," a measure that increases the exemptions from the Alternative Minimum Tax to ensure that most taxpayers are not affected by it. (The chambers differ on the extent to which the costs of the AMT patch will have to be offset with revenue-raising measures in the future.)

The resolutions do not follow the President's proposals on certain issues. For example, President Obama proposed that the income tax cuts aimed at working families and included in the recently-enacted stimulus bill be made permanent. The resolutions would make some of these permanent, like the expansion in the child tax credit and the American Opportunity Tax Credit for higher education.

But they would not make permanent the Making Work Pay Credit, one of Obama's signature tax policies. Neither do they include any specific language to create a "cap and trade" program to reduce greenhouse gas emissions, which, in the President's proposal, would produce the revenue needed to offset the costs of the Making Work Pay Credit and other energy initiatives.

Similarly, the resolutions do not include language laying out how Congress will pay for health care reform. (The President's budget outline included a reduction in the benefits of itemized deductions for the rich to partially fund health care reform.)

None of this means that Congress will not act on these proposals of the President's. The resolution includes language allowing for deficit-neutral legislation in these areas without specifying how money will be spent or how it will be raised.

Congress's next important test involves settling the differences between the House and Senate resolutions. When it comes to revenues raised to pay for health care or revenues raised from the estate tax, hopefully the choices made by the House will be maintained in the final budget resolution. See the following Digest articles for more.

Estate Tax: Senate Approves a Break for Millionaires that Leader Reid Calls "So Stunning, So Outrageous"

 

Reconciliation for Health Care Reform: House Moves to Stop Senators' Obstruction of Measures with Majority Support

 

House GOP's Alternative Budget: Poor Pay More, Rich Pay Less, Stimulus Repealed and Government Shrinks

When anti-tax activists and lawmakers complain that Congress and the President are pursuing policies that will cause taxes to be too high, the first question anyone should ask is: Compared to what? What exactly is the alternative to allowing the Bush tax cuts to end (at least for the rich) and finding new ways to raise revenue?

This week the House GOP showed us what the alternative is and it's frightening. On Wednesday, the ranking Republican on the U.S. House of Representatives' Budget Committee, Congressman Paul Ryan (R-Wisc.), released a budget plan which he argues is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions approved by both chambers last night. His proposal is apparently an update of the plan that House GOP leaders introduced last week and is different in some key respects.

The revised House GOP budget plan would move towards cutting and privatizing Medicare, convert Medicaid into limited block grants to states, and even cut Social Security benefits for some retirees. The plan would deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs by refusing to adjust the budgets of these programs for inflation and population growth for five years. The House GOP plan would repeal the recently enacted economic stimulus law (the American Recovery and Reinvestment Act of 2009, or ARRA) a year before its expiration at the end of 2010.

A report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the House Democratic plan in 2010, and finds that:

• Over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes under the House GOP plan than they would under the House Democratic plan in 2010.
• The richest one percent of taxpayers would pay $75,000 less, on average, in income taxes under the House GOP plan than they would under the Democratic plan in 2010.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the Democratic plan, would cost over $225 billion more than the Democratic plan's income tax policies in 2010 alone.

Read the report.

Yesterday, the ranking Republican on the U.S. House of Representatives' Budget Committee, Congressman Paul Ryan (R-Wisc.), released a budget plan which he argues is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions working their way through the House and Senate right now. His proposal is apparently an update on the plan that House GOP leaders introduced last week and is different in some key respects.

A new report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the House Democratic plan in 2010, and finds that:

• Over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes under the House GOP plan than they would under the House Democratic plan in 2010.
• The richest one percent of taxpayers would pay $75,000 less, on average, in income taxes under the House GOP plan than they would under the Democratic plan in 2010.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the Democratic plan, would cost over $225 billion more than the Democratic plan's income tax policies in 2010 alone.

Read the report.

Yesterday, the Republican leadership in the U.S. House of Representatives released the outlines of a tax and spending plan that they argue is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions working their way through the House and Senate.

A new report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the President's plan and finds that:

• Over a fourth of taxpayers, mostly low-income families, would pay more in taxes under the House GOP plan than they would under the President's plan.
• The richest one percent of taxpayers would pay $100,000 less, on average, under the House GOP plan than they would under the President's plan.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the President's plan, would cost over $300 billion more than the Obama income tax cuts in 2011 alone.

Read the report.

This week, Citizens for Tax Justice updated its recent report on the tax proposals in the President's budget outline to include estimates of the proposals' impacts on different income groups in every state. The new state figures examine the proposed cuts compared to current law and also compared to the baseline that the Obama administration uses in presenting its budget figures. The figures show that, whichever baseline is used, the vast majority of families in every state will get a significant tax break.

Read the report. (State-by-state figures are in the final appendix.

On February 26, President Obama sent to Congress the blueprint for what could be one of the most progressive federal budgets in generations. The budget calls for national health care reform, expanded education funding, a program to reduce global warming, and several improvements in human needs programs. As a new report from Citizens for Tax Justice explains, it would make the tax code considerably more progressive, and close a number of egregious tax loopholes.

There is, however, a flaw in the budget proposal: It does not raise enough revenue to pay for public services. Instead, its net effect is to cut taxes dramatically.

Opponents of the President have attempted to argue that the budget proposal calls for tax increases that could sink the economy, but this complaint is plainly unfounded. President Bush and his allies in Congress were adamant that lower taxes would lead to an explosion of prosperity, and they enacted tax cuts in 2001, 2002, 2003, 2004 and 2006. Some allies of the former President argue that Congress is now insufficiently focused on tax cuts, but this view seems bizarre and incredible given the sad economic facts all around us.

Indeed, one might reasonably conclude that we could safely allow most of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law, without any concern about how this will impact the economy. But President Obama actually proposes to keep most of the Bush tax cuts. Obama's largest proposed tax cut is to re-enact 80 percent of the Bush tax cuts that are scheduled to expire at the end of 2010. Most of this reflects re-enacting the Bush income tax cuts for married couples with incomes below $250,000 and others with incomes below $200,000 (or put another way, for about 98 percent of taxpayers), and permanently reducing the Alternative Minimum Tax (AMT). In addition, Obama proposes to re-enact close to half of the Bush estate tax cut.

On top of re-enacting most of the Bush tax cuts, the Obama budget includes a number of additional tax cuts for families and individuals. (These would be extensions of temporary tax cuts included in the recently passed stimulus law.) It also proposes some questionable business tax cuts.

Partially offsetting its tax-cut proposals, the Obama budget proposes some significant revenue-raising provisions. These include a cap-and-trade program to reduce carbon emissions, a limit on the benefits of itemized deductions for high-bracket taxpayers, and a number of corporate and high-income loophole-closing measures.

Read the Report

Revised March 4, 2009

On Thursday, President Obama sent his budget blueprint to Congress. While many of the details remain to be seen, it's the most progressive budget we've seen in years. It's also a more honest budget than the last administration ever proposed. For example, it doesn't pretend that the Alternative Minimum Tax (AMT) will expand its reach to tens of millions of additional taxpayers (which Congress never allows), and it includes the cost of the Iraq and Afghanistan wars instead of pretending that they will end this year.

It goes a long way towards making the tax system fairer and more progressive. The tax portion of the budget would allow the Bush tax cuts to expire for the very rich and includes revenue-raising provisions that are progressive, environmentally friendly and which, in some cases, would make the tax code simpler.

But the budget blueprint does muddle the cost of extending the Bush tax cuts for all but the top 2 percent of individual taxpayers by using a baseline that assumes the Bush tax cuts have already been made permanent, when in reality they are scheduled to expire at the end of 2010. (In other words, the Obama administration is using a baseline that assumes John McCain won the presidential election and his allies swept both chambers of Congress and were able to enact his tax policies!)

Continuing the Bush tax breaks for 98 percent of taxpayers and providing AMT relief will cost $2.6 trillion over the 10-year budget period. That's a steep price to pay for tax cuts that have not delivered their promised benefits. As the budget moves through Congress, we hope that the goal of long-term deficit reduction will prevail and the Bush tax breaks will be reduced even more. This could mean, for example, further raising the rates on capital gains and scaling back the cut in the estate tax. These changes would help move us towards the day when the government actually collects enough revenue to pay for the services it provides.

In addition to extending a lot of the Bush tax cuts and providing AMT relief, the President's budget would also provide around $770 billion in additional tax breaks targeted to working class people, plus over $70 billion in tax cuts for business. These are offset with several revenue-raising provisions, including a "cap and trade" program to limit carbon emissions, cleaning up the international tax system and eliminating loopholes for energy companies and other corporations.

These provisions are all included in the tax portion of the budget proposal. Other parts of the proposal include other revenue-raisers. For example, the budget includes a new provision that would limit the benefit of itemized deductions so that they could not reduce taxes by more than 28 percent (instead of, say, 35 percent for people rich enough to be affected by the 35 percent income tax rate). This provision would raise revenue to offset new health care spending.

This budget may not be perfect, but it does take several steps to find revenue to invest in our future and support working class families.

Next week, CTJ will provide a more detailed analysis of the President's budget and its tax provisions.