President Barack Obama’s revenue proposals for the 2014 budget would intentionally raise taxes on the highest- income American households. Individuals making below $200,000 and couples making $250,000 or less have been protected under Obama’s long- standing pledge to shield them from any tax hikes. However, next year they could see a slight increase in the amount they pay compared to today’s tax rates.
It is expected that those people making over $1 million will be paying more in 2015. Their taxes will be boosted by an average of about $83,000 due to Obama’s tax hikes in individual, corporate, estate, and excise taxes. Furthermore, this could decrease their after-tax income by nearly 3.8 percent. Obama has planned to raise their average federal tax rate to slighty above 41 percent which is 2.3 percentage points higher than it is today. Those making a million and above will pay 60 percent of the tax increases while those in the top 5 percent (above $227,000) will pay 85 percent of the new taxes.
Nevertheless, middle-income households will see a slight tax hike as well. People making between $50,000 and $75,000 will face an increase of about $60 in 2015, cutting their after-tax income by 0.1 percent. Despite representing about one-sixth of all taxpayers, they will only be held accountable for about 2 percent of the new taxes.
People earning between $100,000 and $200,000 will also see their after-tax income fall by about 0.1 percent while seeing an increase of about $150 on average. This class represents a smaller portion of taxpayers, 14 percent, and they only be responsible for a small percentage of about 4 percent.
By 2023, a key provision of Obama’s plan is to change the way income tax is indexed for inflation to the Consumer Price Index which would slowly but steadily raise taxes. This will allow for the middle-income households to pay a larger percentage of their incomes in taxes in a decade rather than 2015. In addition, Obama will extend his 2009 tax cuts for low- income families with children and those going to college beyond their 2017 expiration date. This plan will nearly double the share of the total tax that households between $100,00 and $200,000 pay to over 7 percent.
Obama’s new proposed budget has dozens of changes to the revenue code involving raising some taxes while cutting others. The high-income households will see tax increases while others will see a mix of both tax cuts and tax hikes.
Middle-income households are expected to benefit from two tax changes: a more charitable child and dependent care tax credit, and Obama’s proposal to extend those generous rules to child tax credit, education credit, and earned income credit. However, his proposed tobacco tax increase will disproportionately affect moderate and low-income taxpayers who generally spend a bigger share of their income on cigarettes than the wealthy.
Unfortunately for the high-income taxpayers, there is no good news. Obama will adopt a version of the Buffett Rule by imposing a Fair share minimum tax of 30 percent of adjusted gross income over $1 million, limit the value of itemized deductions and other tax preferences to 28 percent, and raise taxes on estates, gifts, and certain family trusts.
Obama’s proposed tax plan will do exactly as he said: raise taxes by about $1 trillion over the next decade. Despite most of the revenue coming from those making over $200,000, he slightly broke his promise of no taxes for those making less.