As soon as news broke regarding President Obama’s plan to institute the “Buffett rule” — which stipulates that the wealthy shouldn’t pay lower tax rates than the middle class — Republicans began criticizing the president for engaging in “class warfare.” “It looks like to me not a very good sign. It looks like the president wants to move down the class warfare path,” said House Budget Committee Chairman Paul Ryan (R-WI).
Leaving aside that the GOP is crying class warfare to preserve low taxes for the rich, while simultaneously trying to raise taxes on the middle class, the president’s plan is far from an unfair shot at the rich. As the Center for American Progress’ Michael Linden and Michael Ettlinger wrote, Obama’s plan “is the embodiment of the ‘balanced approach’ that he has been calling for from the beginning — and that we know from poll after poll that the American people want.” Here are some of the tax measures that the president released today:
– Allow the 2001 and 2003 high-income tax cuts to expire and return the estate tax to 2009 parameters: These tax cuts, respectively, benefit the richest two percent and the richest 0.25 percent of Americans.
– Reduce the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000: This tax change alone will raise $400 billion over ten years, while ensuring that the very wealthy don’t benefit disproportionately from tax deductions.
– Tax carried (profits) interests as ordinary income: Due to a loophole in the tax code, hedge fund managers — who often make billions of dollars annually — are able to pay a 15 percent tax rate on income (known as carried interest) that they make for managing other people’s money. Taxing carried interest as ordinary income eliminates that disparity.
– Eliminate special depreciation rules for corporate purchases of aircraft: This provision allows corporate jets to be depreciated over a five-year period rather than the seven-year period required for commercial ones. Repealing it would save about $3 billion over 10 years.
– Eliminate oil and gas tax preferences: Repealing tax subsidies to the hugely profitable oil and gas industries would save about $4 billion annually.
– Repeal last-in, first-out (LIFO) method of accounting for inventories: This accounting boondoggle allows companies to assume, for tax purposes, that their entire inventory was purchased for the last (most expensive) price. Thus, when they sell off their inventory, their taxable income looks smaller. Repealing it would raise $72 billion over five years.
– Require the financial services industry to pay back taxpayers: The administration’s Financial Crisis Responsibility Fee, which has been proposed multiple times but never moved in Congress, would require the nation’s biggest banks to pay any outstanding costs associated with the Troubled Asset Relief Program (TARP), which currently stands at $48 billion.
These tax provisions would end inequities in the tax code, stop tax boondoggles benefiting the nation’s biggest corporations, and ask that the financial industry pay back a pittance for the support that it received during the financial crisis (not just from TARP, but from the extraordinary efforts of the Federal Reserve). At a time of skyrocketing income inequality and soaring corporate profits, these changes only make sense.