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What Obama's Tax Proposal Could Cost Him, And Us

Copies of President Obama's budget plan for fiscal year 2014 are distributed to Senate staff on Capitol Hill on Wednesday.
Copies of President Obama's budget plan for fiscal year 2014 are distributed to Senate staff on Capitol Hill on Wednesday.

President Obama's newly released tax return shows his effective income tax rate was 18.4 percent last year. He'll likely pay a somewhat higher rate in 2013, and that tax bill would be even bigger if Congress were to adopt the recommendations in the president's own budget, unveiled this week.

The president signed his tax return last Monday, just one week before the deadline, and he's in good company. Intuit spokeswoman Julie Miller, whose company makes the popular TurboTax software, says about 50 million Americans will file their taxes in the last two weeks of the season.

"This year we've seen more and more people wait till the end; so we're in for a very busy weekend," Miller says. "Monday will certainly be a peak day."

The filing season started late this year, since Congress was still debating taxes until nearly midnight on Jan. 1. As always, Miller says, there are plenty of complications.

"If you were doing your taxes manually, it's like churning your own butter. It's just hard," she says.

One reason taxes are so complicated is the maze of deductions and credits. The president's budget would rein in some of those tax breaks. That could make for a simpler code, though many wealthy taxpayers would end up paying more.

"If we're serious about deficit reduction, then these reforms have to go hand-in-hand with reforming our tax code to make it more simple and more fair," President Obama said, "so that the wealthiest individuals and biggest corporations cannot keep taking advantage of loopholes and deductions that most Americans don't get."

The biggest change the president is proposing, and it's one he's suggested before, is to limit the value of itemized deductions for the wealthy. For example, the Obamas gave $150,000 to charity last year. Similar contributions this year would save the first family nearly $60,000 in taxes.

Under the president's plan though, that charitable tax break would be worth less, and the couple's tax bill would be about $18,000 higher.

The president's budget would also require millionaires to pay a minimum tax rate of 30 percent.

The president would also do away with various corporate tax breaks, though White House economic adviser Gene Sperling says Obama is also willing to lower corporate tax rates.

"If there's a once-in-a-generation moment to have comprehensive corporate tax reform that reduces expenditures, loopholes and lowers rates to make our corporate tax code more competitive, then he's willing to do that in a revenue-neutral way," Sperling says.

Rep. Dave Camp, the Republican chairman of the House Ways and Means Committee, says lowering corporate tax rates is a good idea. But at a breakfast sponsored by the Christian Science Monitor this week, Camp said the government also needs to lower individual tax rates, since many businesses are taxed through the personal returns of their owners.

"You can't have the corporate rate at 25 [percent] and then have small businesses on Main Street paying 40 [percent] plus," Camp said. "So if you do just the corporate side, it's not enough."

This remains the big divide between the president and congressional Republicans. Both say they're willing to close loopholes in the individual tax code, but the president is counting on using the money raised to pay down the deficit. Republicans insist the extra money be returned to taxpayers in the form of lower rates.

Obama says unless Republicans give ground on revenue, the controversial cuts to Medicare and Social Security in his budget are also off the table.

"If anyone thinks I'll finish the job of deficit reduction on the backs of middle-class families or through spending cuts alone that actually hurt our economy short-term, they should think again," the president said.

With a bipartisan agreement elusive, taxpayers might not count on seeing a simpler tax code any time soon.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.