President Obama released his budget proposal earlier this month. There are many tax changes for businesses and individuals included in his budget. A few of the provisions designed to increase taxes include the following:
- Create a “Fair Share Tax”, which would require households with at least $1 million of income to pay a minimum of 30% in taxes after charitable donations.
- Reduce the value of certain tax preferences and itemized deductions for taxpayers with income in the top three tax brackets (33%, 35%, and 39.6%)
- Return the estate tax to 2009 levels, which would be a $3,500,000 exemption per individual and top tax rate of 45%
- Limit the amount an individual can accumulate in a tax-preferred retirement account to no more than $3,000,000. Currently there is no limit.
- Require non-spouse beneficiaries of IRA owners and retirement plans to take inherited distributions over no longer than 5 years. Currently, non-spouse beneficiaries are able to stretch the distributions from inherited IRAs over their life expectancy.
The Tax Policy Center, an organization that provides independent analyses of current and emerging tax policy, has projected that taxpayers with incomes over $1,000,000 would experience an increase of 2.3% in taxes they currently pay in 2015, the first year the President’s budget would be effective. In addition, 62.4% of the increase in taxes would be carried by those with taxable income in excess of $1 million. Taxpayers with incomes under $30,000 would pay less in taxes. Taxpayers with incomes between $50,000 and $200,000 would see a slight increase in their taxes, about .1% increase.
While it appears the tax increases are targeted to taxpayers earning $1,000,000 or more, one key provision in Obama’s plan will cause all income tax rates to steadily increase. The “chained Consumer Price Index”, which would change the way the income tax is indexed for inflation, would slowly but steadily raise taxes. As a result, taxpayers will pay a larger share of their incomes in taxes in 2025 than they would in 2015.