Obama & Romney Tax Plans

Now that the election is only days away, it is helpful to look once again at the Obama and Romney Tax Plans. I get this information from the Tax Policy Center (TPC) who has done excellent work on this.

Click here to find TPC's more in depth analysis for Obama and Romney.

Obama's plan in a nutshell (Quote From TPC):

The elevator speech: Obama would retain the current individual income tax system, but raise taxes on high-income households to help reduce the budget deficit. He'd lower corporate tax rates but make it harder for multinationals to avoid U.S. tax on their foreign income.

Romney's plan in a nutshell (Quote From TPC):

The elevator speech: Romney favors multiple tax cuts for individuals and would reduce corporate income tax rates. By themselves, his specified tax cuts would reduce federal revenues by trillions of dollars over the next decade. However, Romney says he would avoid adding to the deficit through faster economic growth and unspecified reductions in current tax preferences. Romney would not use new taxes to help lower the deficit.

Capital Gains and Dividends: One important distinction between Obama and Romney's plans is that Obama proposes an increase of the dividend rate to 39.6% (up from the current 15% rate) and the capital gains rate increased to 20%. Romney proposes to make capital gains and dividends tax free (to households making $200,000.00 or less) and keep the current 15% rate for those making $200,000.00 or more.

Tax Policy Calculator: Updated to show Republican, Obama and full expiration scenarios

The Tax Foundation has updated their interactive tax calculator which can be found here. This is a fantastic tool that will allow everyday taxpayers to run their own numbers through the calculator to see how they will fair alternatively under the Republican proposal, the Obama proposal and under the full expiration of Bush-era tax cuts.

The Tax Foundation explains the calculator.

"We've updated our interactive tax calculator at www.mytaxburden.com to reflect these new policy scenarios. The left column ("Republican Proposal") assumes passage of H.R. 8 (full extension of Bush tax cuts but not stimulus bill ones), as well as repeal of the health care bill (which includes new payroll taxes on high income earners scheduled to go into effect next year) while the right column ("Obama Proposals") assume that the changes proposed in President Obama's budget are adopted: extension of the stimulus bill provisions as well as the Bush-era tax cuts, but only for filers making under the thresholds."

I highly recommend that you run your numbers to see how your tax liability might change.

The Tax Foundation explains the changes here and summarizes:

"Very low-income filers, as well as filers receiving tax credits for college tuition, are likely to do better under the Obama/Democratic plan; very high-income filers are likely to do better under the Republican plan. For the vast majority of people, income tax liability will be the same under both plans."

Tax Calculator.

Table of tax parameters and rates under each scenario.

President Obama’s Business Tax Reform Plan

President Obama has recently released his Framework for Business Tax Reform.

The President proposes to lower the statutory Corporate rate from 35% to 28%.

The President's Five Elements of his Business Tax Reform:

PRESIDENT OBAMA'S FIVE ELEMENTS OF BUSINESS TAX REFORM

I.     Eliminate dozens of tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth in America: The Framework would eliminate dozens of different tax expenditures and fundamentally reform the business tax base to reduce distortions that hurt productivity and growth. It would reinvest these savings to lower the corporate tax rate to 28 percent, putting the United States in line with major competitor countries and encouraging greater investment in America.

II.    Strengthen American manufacturing and innovation: The Framework would refocus the manufacturing deduction and use the savings to reduce the effective rate on manufacturing to no more than 25 percent, while encouraging greater research and development and the production of clean energy.

III.    Strengthen the international tax system, including establishing a new minimum tax on foreign earnings, to encourage domestic investment: Our tax system should not give companies an incentive to locate production overseas or engage in accounting games to shift profits abroad, eroding the U.S. tax base. Introducing a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates.

IV.    Simplify and cut taxes for America's small businesses: Tax reform should make tax filing simpler for small businesses and entrepreneurs so that they can focus on growing their businesses rather than filling out tax returns.

V.    Restore fiscal responsibility and not add a dime to the deficit: Business tax reform should be fully paid for and lead to greater fiscal responsibility than our current business tax system by either eliminating or making permanent and fully paying for temporary tax provisions now in the tax code.

Update on Friday, February 24, 2012 at 11:31AM by Jess Monnette

Tax Foundation commentary can be found here and here and here.

President Obama’s 2013 budget: Dividend Rate to be 44.8%

According to the WSJ, President Obama's 2013 budget includes a proposal that will raise dividend tax rates to 44.8%. The plan itself raises the dividend tax rate to 39.6%, which when combined with a phase-out of deductions and exemptions, and Obamacare's 3.8% investment tax surcharge, results in a total tax on dividends of 44.8%. The capital gains rate will stay at its current 15% but the 3.8% Obamacare tax will apply to increase the total capital gains rate to 18.8%. The above analysis applies to individuals making over $200,000 per year and couples making over $250,000 per year.

Although the full implications of this tax increase will keep commentators busy for months, it is sufficient to note at this point that the disparity created between the tax rate on dividends (44.8%), and the tax rate on capital gains (18.8%), will create an incentive for businesses to favor the reinvestment of profits rather than the payment of dividends to shareholders. For more analysis, see the WSJ article.

Effective Income Tax Rates: Now isn’t this interesting.

Scott A. Hodge, at the Tax Foundation, has compiled a very interesting table which was sourced out of IRS tax statistics for 2009.

Hodge states "[f]or the entire universe of American taxpayers, the average tax rate is 11 percent of our AGI. The highest average tax rate paid by anyone earning under $100,000 is 8 percent. That shows the power of the sundry tax credits available to the 'middle-class'."

In President Obama's January 24, 2011 State of the Union address, he proposed a new 30% Alternative Minimum Tax (AMT) on households with income of more than $1M per year. Evidently this can be accomplished by limiting deductions to those taxpayers. More here.

It appears that returns with less than $100,000.00 of income constitute 87.5% of all returns. That means that 87.5% of Americans pay an average effective rate of 8% or less.

President Obama has now proposed an effective minimum rate of 30% for all incomes over $1M.

Table from Tax Foundation

Income Tax Summary Statistics for 2009
	All Returns	AGI ($Billions)		Taxable Returns		Income Tax After Credits ($Billions)		Average Tax Rate	Share of total taxes	Share of all AGI
All returns, total	140,494,127	$7,626		81,890,189		$865.9		11%	100%	100%
No adjusted gross income	2,511,925	($199)		3,820		$0.1		0.0%	0%	-3%
$1 under $5,000	10,447,635	$27		306,587		$0.0		0.1%	0%	0%
$5,000 under $10,000	12,220,335	$92		1,899,331		$0.4		0.4%	0%	1%
$10,000 under $15,000	12,444,512	$155		2,883,906		$0.8		1%	0%	2%
$15,000 under $20,000	11,400,228	$199		4,868,050		$2.5		1%	0%	3%
$20,000 under $25,000	10,033,887	$225		4,639,085		$4.7		2%	1%	3%
$25,000 under $30,000	8,662,392	$238		4,603,763		$6.8		3%	1%	3%
$30,000 under $40,000	14,371,647	$500		9,589,845		$20.2		4%	2%	7%
$40,000 under $50,000	10,796,412	$483		8,381,017		$25.4		5%	3%	6%
$50,000 under $75,000	18,694,893	$1,149		16,449,393		$78.0		7%	9%	15%
$75,000 under $100,000	11,463,725	$990		10,987,101		$80.5		8%	9%	13%
$100,000 under $200,000	13,522,048	$1,801		13,374,553		$212.3		12%	25%	24%
$200,000 under $500,000	3,195,039	$905		3,178,420		$176.3		19%	20%	12%
$500,000 under $1,000,000	492,567	$332		489,904		$80.5		24%	9%	4%
$1,000,000 under $1,500,000	108,096	$130		107,416		$32.8		25%	4%	2%
$1,500,000 under $2,000,000	44,273	$76		44,015		$19.4		25%	2%	1%
$2,000,000 under $5,000,000	61,918	$183		61,535		$46.9		26%	5%	2%
$5,000,000 under $10,000,000	14,322	$97		14,236		$24.6		25%	3%	1%
$10,000,000 or more	8,274	$240		8,211		$53.8		22%	6%	3%
Summary for $1 Million+	236,883	$726.9		235,413		$177.5		25%	20%	10%
Source: IRS 2009 Data, Table 1.2 http://www.irs.gov/pub/irs-soi/09in12ms.xls