State of taxes in Obama’s State of the Union address.
Tuesday was the day that news really wasn’t new.
First, Mitt Romney released his tax returns, which didn’t tell us very much we didn’t already know.
Then came Obama’s 2012 State of the Union address, which also contained a lot of tax ideas that we’ve heard before.
And we’ve still got a week until Groundhog Day!
In case you missed it, you can watch the White House video of the speech.
But since you’ve stopped by the ol’ blog, here are the tax highlights.
Buffett Rule booster: Let’s start with individual taxes.
Obama wants Congress to sign off on the Buffett Rule. The White House floated this idea of taxing the wealthy more last fall, shortly after Warren Buffett announced that he didn’t believe he paid enough to Uncle Sam.
The reason for the low tax rate, according to the Berkshire Hathaway head and the prez, is the preferential tax treatment given to investment income. That 15 percent long-term capital gains tax rate is enjoyed by not only Buffett and many of his financial peers.
But if Obama gets his wish, households with annual incomes of more than $1 million would pay a minimum tax rate of 30 percent. That would be double the rate paid by Willard Mitt over the last two years.
In addition, the prez wants to end many tax breaks for rich taxpayers. Again, this is something the Administration has proposed before.
“[M]y Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires,” said Obama, referring to the Oklahoma Senator’s report on tax subsidies of the rich and famous.
Obama proposes ending tax breaks for mortgage interest, health care cost, retirement contributions or child care for those making more than $1 million a year. Charitable contributions, however, would still be allowed to wealthy donors.
Business tax enticements, penalties: On the corporate tax side, Obama decried a tax system that provides “tax breaks for moving jobs and profits overseas” while “companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it. So let’s change it.”
Obama’s suggested corporate tax changes include both carrots and sticks. He wants to:
- Require U.S. companies pay a minimum tax on overseas profits. The U.S. Treasury would get any difference between the foreign tax and a new, unspecified minimum tax.
- Prohibit companies from claiming a business eduction for any costs associated with closing American operations that are then sent abroad.
- Offer a new tax credit for companies coming back to the United States. It would cover the costs of closing overseas operations that are relocated in the U.S.
- Lower tax rates for manufacturers, with added tax breaks for high-tech manufacturing.
What now? The Buffett Rule is a nonstarter in this current political climate. But it will lead to continued discussion of our current tax system and how it might be adjusted to erase perceptions of unfairness.
As for actual individual tax changes, don’t count on them until sometime in 2013 at the earliest regardless of (or depending on) who gives that year’s State of the Union address.
Some corporate tax refinements might have a better chance of making it through the legislative process this year. But even then, look for any changes here to be minor.
Or, to paraphrase the president as he was wrapping up his remarks, that brings us back to where we began. Just like so many times before.