President Obama's $1 Trillion Tax Hike Plan

Thursday, February 26, 2009 4:59 PM

By: Chris Gonsalves


Looking to fund an ambitious healthcare program and put more money in the hands of the poor and the non-working, President Barack Obama wants wealthier Americans and businesses to pay nearly $1 trillion in higher taxes over the next decade.

In his proposed 2010 budget, released today, Obama suggests bringing back the top two Clinton-era tax rates of 36 percent and 39.6 percent for the nation’s highest earners. Those taxpayers currently pay 33 percent and 35 percent. More than 2.6 million Americans would be forced to pay the higher rates, according to Bloomberg News.

Tax rates on capital gains and dividends will rise to 20 percent for top earners, up from the 15 percent rate set by former President George W. Bush in 2003.

“It’s a clear repudiation of Bush’s policy,” Peter Morici, an economist at the University of Maryland in College Park, tells Bloomberg. “It’s more Obama Robin Hood.”

As if the rate changes weren’t enough, Obama also proposes punishing the rich by stopping the scheduled repeal of the controversial estate tax next year. The president suggests imposing a 45 percent tax rate on any family’s estate worth more than $7 million.

The Obama tax hikes also include new restrictions on itemized deductions for families that earn more than $250,000 per year. Deductions for things like charitable donations, mortgage interest and investment expenses will be capped at 28 percent for the wealthiest taxpayers, some 30 percent less than they currently get.

By 2020, taxpayers in the wealthiest households will pay $636.7 billion in additional taxes according to estimates in the budget proposal.

The changes would be phased in gradually over the next few years, according to an analysis of the budget by the Wall Street Journal. For the 2009 tax year, the 33 percent tax bracket starts with couples with adjusted earnings of $208,850. A taxpayer in the top bracket paying $1,000 of mortgage interest, for example, would see a tax break worth $350 reduced to $280.

According to estimates from Deloitte Tax, a married couple with 2 children under age 17 and income of $500,000 a year would owe approximately $11,300 more than under current law if all of the tax provisions in Obama's budget request outline were enacted, CNN reported.

The remainder of the $1 trillion tax hike would come from $353.5 billion in additional levies on businesses, especially U.S.-based multinational corporations. Obama’s proposal calls for significantly rewriting the rules on the taxability of profits earned overseas, increased enforcement of international tax collections and changes in accounting that would serve as a “windfall profits tax” aimed largely at the oil companies.

"This budget plan is once again a missed opportunity for American taxpayers — it raises taxes on all Americans, implements massive new spending and fails to make any tough choices to control the deficit," Sen. Judd Gregg, R-N.H., the top Budget Committee Republican, told the Associated Press. Gregg was nominated by Obama to join his Cabinet as commerce secretary but later withdrew.