President Barack Obama today proposed to close tax loopholes and roll back some of the tax cuts that the wealthy have enjoyed over the last decade as part of his overall jobs and deficit reduction plan. Conservatives wedded to the supply-side mantra that cutting taxes on the wealthy is the cure to any economic ill claim his plan would be bad for the economy, but the reverse is true.
Under his plan, the U.S. tax code would be more fair, better for the middle class, and less strewn with loopholes that distort business and consumer decision making. The plan:
- Extends middle-class tax cuts, including the tax cuts enacted under President George W. Bush and expanded in 2009 under President Obama, and also extends and expands the payroll tax holiday in effect since January 2011.
- Allows the Bush “bonus” tax cuts to expire on schedule at the end of 2012 so that the top two rates revert to their 1990s’ levels of 36 percent and 39.6 percent.
- Limits the benefit that top-bracket taxpayers receive from itemized deductions and other preferences to 28 percent instead of up to 35 percent under current law. That means that wealthy taxpayers can still claim these deductions and benefit from exclusions but they won’t receive any additional benefit on top of what taxpayers in the 28 percent bracket receive.
- Closes a number of additional loopholes and special subsidies in the tax code, including those for oil-and-gas companies, hedge fund managers, corporate jet users, and companies that use accounting techniques to report income in low-tax foreign countries.
- Calls for broader individual and corporate tax reform based on the principles that the tax code should be simpler and fairer, that it should incentivize job creation in the United States, and that millionaires should never pay lower taxes than middle-class families.
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