March 29, 2024

White House Budget Curbs Some Deductions for the Wealthy

Outlining his budget proposals to Congress on Wednesday, Mr. Obama pushed to raise more than $600 billion in new revenue, mainly by curbing deductions for the most affluent taxpayers and forcing millionaires to pay a minimum rate of 30 percent. Under the White House plan, deductions for tax breaks like mortgage interest and contributions to charities would be capped at a maximum rate of 28 percent. The caps would limit the value of the breaks to the top 3 percent of taxpayers who face higher marginal tax rates and generate about $529 billion in additional revenue over 10 years.

Many of the budget proposals, including the limit on deductions, have been made before by the Obama administration. Analysts said Congress was unlikely to adopt them in isolation, but that some Republicans might be open to a broader deal that included measures to close various loopholes in the tax code.

Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, said the main part of the tax proposal — curbing tax deductions for high-earners — could form part of a future deal because they were close to what Republicans have themselves proposed in the past. “In any agreement that finally comes together this will be the core revenue piece of it,” he said.

At the same time, the administration formally proposed the so-called Buffett rule, which would impose a new minimum 30 percent tax rate on households earning incomes above $1 million. It said this could generate an additional $53 billion in revenue over a decade. It is named after Warren E. Buffett, the billionaire investor, who said in an Op-Ed article in The New York Times that he was paying a lower tax percentage than members of his office.

“This proposal will prevent high-income households from using tax preferences, including low tax rates on capital gains and dividends, to reduce their total tax bills to less than what many middle class families pay,” according to the White House.

Roberton Williams, senior fellow at the Tax Policy Center in Washington, said the rule’s inclusion in the budget proposal was an indication that the Obama administration was determined “to make sure that the rich people pay something.”

Tax rates for high-earners were increased this year for the first time in two decades as part of the postelection deal to avoid the so-called fiscal cliff and to help pay for the cost of expanded health care coverage.

Despite those increases, the effective tax burden for the very wealthy remained considerably lower than in past decades, according to Emmanuel Saez, professor of economics at the University of California, Berkeley. He estimated the recent tax increases could take the total average federal tax rate of the top 0.1 percent of earners to about 40 percent, compared with about 51 percent in 1981. The total tax take from that group had fallen to about 33 percent after the Bush tax cuts.

In its proposal, the Obama administration also proposed a $3 million limit on tax-deferred individual retirement accounts — another tax measure aimed at wealthy individuals who have been accused of using the accounts to shelter large amounts of money rather than for simple savings.

The White House also proposed, as it has in the past, ending the preferential treatment of private equity and hedge fund profits, known as carried interest. These profits are currently taxed as a long-term capital gain.

The treatment of carried interest has for years been strongly defended by elements of the financial industry, and the White House proposal was quickly attacked on Wednesday by the leading private equity industry trade group. Even supporters of the proposal conceded that it faced stiff political opposition.

“Republicans are never going to sign off on this,” said Andrew Fieldhouse, an analyst at the Economic Policy Institute.

While most of the proposed tax increases were aimed at higher earners, there were important proposals that would affect all individuals.

The administration proposed higher taxes on tobacco products to pay for early childhood education, raising about $78 billion over a decade.

Its plan for a new cost-of-living formula to reduce future Social Security benefits would also involve indexing income tax brackets to the different measure of inflation. This would effectively increase the money raised by the income tax across the board over the next decade, affecting “people throughout the income distribution,” said Donald Marron, director of the Tax Policy Center.

President Obama said he was still committed to lowering the federal corporate tax rate from 35 percent. But he also wanted to close tax loopholes that allow many companies to pay a much lower effective corporate tax rate.

In the budget, he proposed eliminating special tax privileges for the oil, gas and coal industries to save a further $44 billion over 10 years, increased taxation of foreign earnings, and special rules for corporate jets.

The Business Roundtable, a lobbying group that represents major corporations, said it welcomed any cut in corporate taxes, but wanted the reductions to be part of broader reform, and objected to measures that aimed at particular industries.

“Singling out certain industries for taxation is bad tax policy,” the group said in a statement.

Article source: http://www.nytimes.com/2013/04/11/business/white-house-budget-curbs-some-deductions-for-the-wealthy.html?partner=rss&emc=rss

DealBook: Goldman Retreats From Plan to Award Bonuses Later in Britain

Mervyn King, the governor of the Bank of England, criticized banks that were considering paying bonuses later than usual.Brendan McDermid/ReutersMervyn King, the governor of the Bank of England, criticized banks that were considering paying bonuses later than usual.

LONDON – Goldman Sachs decided on Tuesday that it would not delay the payment of bonuses to its staff in Britain, a move that would have helped investment bankers and other highly paid employees benefit from a lower income tax rate.

The decision was made as lawmakers criticized banks that were considering paying bonuses later than usual. The top tax rate in Britain is scheduled to drop to 45 percent from 50 percent on April 6.

Goldman Sachs’s compensation committee had considered delaying the bonus payments but decided at its meeting on Tuesday not to proceed, said a person with direct knowledge of the decision, who declined to be identified because the meeting was not public. Goldman Sachs is scheduled to report fourth-quarter earnings on Wednesday and usually announces the size of the annual bonuses to its staff soon afterward.

Even the consideration of such a move had threatened to become another public relations problem for the banking industry. Top executives had pledged to try to improve their reputations, which were tarnished by the financial crisis.

Goldman Sachs was already drawing scrutiny in the United States after it distributed $65 million in stock to 10 senior executives in December instead of January, when the company typically makes such awards. The move helped the executives avoid the higher marginal tax rates that will now be imposed on income of $450,000 or more.

Mervyn King, the governor of the Bank of England, told a parliamentary committee on Tuesday morning that even though a delay in bonus payments was not illegal, it was “a bit depressing that people who earn so much seem to think that it’s even more exciting to adjust the timing of it.”

Sajid Javid, a Treasury minister in Britain, called Goldman Sachs this week to urge it not to delay the payments, a person briefed on the discussion said.

The offices of Goldman Sachs in London in 2010.Toby Melville/ReutersThe offices of Goldman Sachs in London in 2010.

The British government announced last year that it would scrap the 50 percent top tax rate for income above £150,000, or about $238,000, which was introduced by the last Labour government to help reduce the budget deficit. George Osborne, the chancellor of the Exchequer, had called the tax “cripplingly uncompetitive” because it cost jobs and did not raise any money.

A spokeswoman for Goldman Sachs declined to comment.

Mr. King said that investment bankers were privileged because a lot of their compensation was made up of bonuses, which the banks can decide to pay whenever they want. But he also said that delaying bonuses to benefit from the coming tax cut “would be rather clumsy and lacking in care and attention to how other people might react.”

“In the long run, financial institutions, like all large institutions, do depend on good will from the rest of society,” he said. “They can’t just exist on their own.”

Earlier, several Labour Party politicians criticized the banking industry for considering a delay of bonus payments. John Mann, of the Labour Party, said such a step would be an “opportunistic money grab,” The Financial Times reported on Monday.


This post has been revised to reflect the following correction:

Correction: January 15, 2013

The headline on an earlier version of this article referred mistakenly to the timing of the bonuses awarded by Goldman Sachs in Britain. As the article correctly noted, the investment bank decided to award bonuses before the tax rate is adjusted on April 6, not after. An earlier version also misstated the currency conversion that would apply to the 50 percent top tax rate for income. The tax rate applied to incomes above £150,000, or about $238,000, not $181,000.

Article source: http://dealbook.nytimes.com/2013/01/15/goldman-retreats-from-plan-to-award-bonuses-later-in-britain/?partner=rss&emc=rss

Economix Blog: Nancy Folbre: Storming the Capitalist Castle

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Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Wall Street is not literally a castle, and the small green space of Zuccotti Park claimed by Occupy Wall Street may soon be emptied. But an upstart movement has spray-painted a new slogan onto the ramparts of the economic establishment.

Today’s Economist

Perspectives from expert contributors.

“We Are the 99 Percent” effectively publicizes a message consistent with research on the distribution of income and wealth: the top 1 percent of households in the United States represents an economic aristocracy.

Over the last 30 years, it has consolidated and amplified its privileged position, making strategic political investments in policies ranging from financial deregulation to cuts in top marginal tax rates.

It took home 21 percent of the nation’s pretax income in 2008, up from 9 percent in 1976. It controlled 36 percent of the nation’s private wealth in 2009.

Some economists argue that inequality has no downside — a view critically dissected by Timothy Noah in a terrific essay, “The United States of Inequality.”

As a poster I admired at the park last Wednesday succinctly put it: “We want democracy, not plutocracy.”

The protesters don’t necessarily demonize the top 1 percent or suggest that taxing them at a higher rate will balance the budget. What brings them together is the conviction that this group exercises disproportionate control over our economic and political life.

Republicans seem to confirm this view when they assert that higher taxes on millionaires would stunt employment growth – as though a small reduction in disposable income would demoralize otherwise mighty job creators.

The very rich are depicted as champions of the people who would graciously repay further tax cuts with economic growth. Yet Republican tax cuts dug much of the budget hole we live in.

A quarter of the millionaires in the United States pay lower tax rates than some middle-class households, vindicating concerns expressed by Warren E. Buffett, the investor king of Omaha now widely considered a traitor to his class.

The posters I saw didn’t propose class war, but they did express class rage. “I paid for your bailout” said one, “and I want a refund.” “Health care, not wealth care,” said another. Several said simply, “I need a job.”

The protestors I heard didn’t pretend to offer a political program. One held up a sign saying, “We’re Here, We’re Unclear, Get Used to It.” He genially described his participation in a week’s worth of workshops and discussions as a “think tank of democracy.”

Another, more discursive poster described the ideals of the “solidarity economy,” starting with: “I don’t have a boss. I’m a worker-owner in a cooperative business,” and ending with, “I joined a credit union so my money stays in the community.”

What seems to be emerging is what the historian Gar Alperowitz described as a process of “evolutionary reconstruction.” It might start by making capitalism more distinct from feudalism.

This idea came to me while reading about a great new product that just hit the market: a $6,400 toilet with its own remote control for water spray and drying fan. Marie Antoinette would have loved it for Versailles.

Whether the ramparts are breached or not, I predict a long and fascinating siege.

Article source: http://feeds.nytimes.com/click.phdo?i=c8290b17ffcde31ce673348ce346aad9

Bucks Blog: Making Your Retirement Savings Plan More Equitable

How about spurring retirement savings by swapping tax breaks based on income for flat-rate tax credits?

That’s the crux of an idea floated, once again, by Peter Orszag, now an executive at Citigroup and a former budget director in the Obama administration. Mr. Orszag, in an opinion piece published recently by Bloomberg, argues that the current system of tax rewards for retirement saving unduly benefits the wealthy, providing a significantly smaller incentive for middle-income earners to sock away cash for a nest egg.

If a person with a high income puts $1 in his retirement plan, he saves 35 cents in income taxes, Mr. Orszag writes. But a middle-income person putting the same amount into a retirement plan saves only 15 cents in income taxes. The system, he says, is upside-down because evidence suggests upper-income people likely would have saved the money anyway, in a taxable account.

“It would be better,” he wrote, “if both people got the same tax break per dollar.”

He suggests replacing the current deduction for retirement saving with, say, an 18 percent matching contribution from the federal government for every dollar put into a tax-preferred retirement account. Such a plan, he says, creates more incentive for middle-income earners to save, while lessening the draw for upper-income earners, who would put less into tax-advantaged accounts. The Tax Policy Center, he says, estimates that level of a match would raise about $400 billion in revenue over the next ten years, without increasing marginal tax rates.

He says such an idea has had bipartisan support in the past.

What do you think? Is replacing tax breaks with flat-rate tax credits a good idea?

Article source: http://feeds.nytimes.com/click.phdo?i=c60119653e5491e616d8d90c2e19cc54