(CNSNews.com) – President Barack Obama today proposed allowing the income tax rates enacted in the Bush tax cuts of the last decade to expire at the end of this year for people earning more than $250,000 and at the end of next year for everyone else.
Under current law, the lower tax rates will expire at the end of 2012. Under Obama's proposal, they will expire at the end of 2012 for those making more than $250,000 and at the end of 2013 for Americans making less than $250,000.
“At the same time, most people agree, we should not raise taxes on middle class families or small businesses, not when so many folks are just trying to get by, when so many folks are digging themselves out of the hole that was created by this great recession that we had and at a time when the recovery is still fragile,” Obama said at the White House on Monday.
“That’s why I’m calling on Congress to extend the tax cuts for the 98 percent of Americans who make less than $250,000 for another year,” he said.
This tax proposal differs from the one Obama called for six months ago in his 2013 budget. In that document, Obama said that the lower Bush tax rates for Americans making less than $250,000 per year should be made permanent.
His proposal today does not make the current lower tax rates permanent--it gives those making under $250,000 only one more year at those rates before they would automatically snap up to the higher rates that prevailed before Bush cut them.
The tax increases Obama proposes for 2014 could impact hundreds of thousands of independent and small businesses.
According to a 2010 report from the congressional Joint Committee on Taxation (JCT) Obama’s earlier proposal to raise taxes on those making more than $250,000 per year would have impacted 50 percent of all independent business income.
"50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent,” the JCT said of Obama’s 2010 tax increase proposal.
In 2010, Obama sought to raise taxes on people making more than $250,000 per year in 2011 while keeping rates the same for everyone else.
Currently, the top two income tax rates--the ones Obama plans to raise--are set at 33 and 35 percent. Obama's proposal would increase them to 36 and 39.6 percent in 2013. In 2014, the remaining brackets would also reset to higher levels.
The JCT said that as many as 750,000 independent and small businesses owners could have been affected by Obama’s tax increase policy in 2011.
“[I]n 2011 just under 750,000 taxpayers with net positive business income (3 percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the President’s proposal,” the JCT reported.
The new tax increases Obama called for on Monday are projected to be steep, especially as the economy continues to recover. As CNSNews.com reported in January, expiring tax rates similar to Obama’s proposal will cause federal revenues to “shoot up,” according to the Congressional Budget Office.
“In particular, between 2012 and 2014, revenues in CBO’s baseline shoot up by more than 30 percent,” the CBO said in January, “mostly because of the recent or scheduled expirations of tax provisions, such as those that lower income tax rates and limit the reach of the alternative minimum tax (AMT), and the imposition of new taxes, fees, and penalties that are scheduled to go into effect.”
In particular, CBO said that if current tax rates expired at the end of 2012--as they are currently scheduled to do--it would add $3.8 trillion to the federal treasury over 10 years. In other words, it would amount to a $3.8 trillion tax increase on all Americans.
“Those expirations--which are projected to boost revenues by a total of $3.8 trillion over the fiscal year 2013–2022 period--will affect various parameters of the individual income tax,” the CBO said in its January Budget and Economic Outlook.