After all the promises and finger-pointing, the presidential campaign is nearly over. But since the race has shed more heat than light on how each of the candidates would govern, I thought it would be useful to describe exactly what Barack Obama and Mitt Romney have pledged to do on tax policy if elected on Nov. 6. I’ll describe Romney’s agenda next week but to start, here is Obama’s:
The elevator speech: Obama would retain the current individual income tax system, but raise taxes on high-income households to help reduce the budget deficit. He’d lower corporate tax rates but make it harder for multinationals to avoid U.S. tax on their foreign income.
Obama has had relatively little new to say on taxes through the campaign, with nearly all of his agenda described in the 2013 budget he released last February.
2001-2010 Tax Cuts: Obama would make nearly all of them permanent, except for individuals making $200,000 or more, or couples making $250,000+.
Taxing the Rich: Obama would let the two top tax rates revert to their 2000 levels—36 and 39.6 percent. He’d raise rates on capital gains from 15 percent to 20 percent for high-income households, and hike the rate on dividends to 39.6 percent. This would be on top of the scheduled 3.8 percent tax increase on investment income due to take effect next year. He also says no household making more than $1 million should pay a smaller share of their income in taxes than a middle-class family (aka the Buffett rule). However, he has not said how he’d achieve this.
The payroll tax: Obama would allow the 2010 payroll tax cut to expire as scheduled in January. In addition, high-income households are due to pay an additional 0.9 percent Medicare tax starting next year. Like the new 3.8 percent tax on investment income, this extra 0.9 percent Medicare levy is a product of the 2010 Affordable Care Act.
Tax preferences: Obama would limit the value of all itemized deductions and some exclusions to 28 percent. Besides the deductions, the cap would apply to preferences such as municipal bond interest and health insurance premiums paid by both employers and the self-employed. He’d maintain current rules for refundable credits such as the Earned Income Tax Credit and the Child Tax Credit.
The Alternative Minimum Tax: He’d permanently “patch” the AMT by continuing to index the levy for inflation. But he would not repeal it.
The estate tax: He’d keep it but exempt the first $3.5 million in estate assets ($7 million for couples). His estate tax rate would be 45 percent. He’d index the exemption for inflation.
The corporate income tax: He’d cut the corporate rate from 35 percent to 28 percent. He says he’d accomplish this by scaling back business tax preferences, but has left those targets largely unidentified. He’d retain the current tax regime for multinational firms, but limit their ability to delay tax by keeping foreign income overseas. Beyond those international tax changes, he has identified only a handful of minor base-broadeners, such as higher taxes on oil and gas producers and owners of corporate jets.
Deficit Reduction: Obama would use both tax hikes and spending cuts to achieve long-term deficit reduction.
If you want to know more, take a look at the Tax Policy Center’s side-by-side description of the Romney and Obama tax proposals, as well at TPC’s more in-depth analyses of the Obama, Romney, and Ryan plans.