"White House Unveils Tax-Rate Details
Higher Rates Would Hit Couples at 'Taxable-Income' Levels Starting at About $235,000
WASHINGTON -- The Obama administration provided more details on the scope of its tax proposals, showing the impact of rate increases on higher earners would hit couples with about $235,000 of "taxable income," or income after deductions and exemptions.
The administration also revealed new details of its initiatives to shut down offshore tax shelters used by some investors and businesses, and to raise taxes on the overseas earnings of many U.S. multinationals.
During the presidential campaign, Barack Obama said he wouldn't raise taxes on couples earning less than $250,000 but didn't give a precise definition of the term. On Monday, the administration published more details of how exactly the rate increases, if approved by Congress, would be implemented.
The Treasury Department's description, known as the "green book," showed that the new 36% rate would apply to an adjusted gross income of $250,000 "less the standard deduction and two personal exemptions." Those items effectively represent the minimum that a couple could subtract from adjusted gross income, officials said. A senior administration official estimated that that produces taxable income of about $235,000.
Many couples with adjusted gross income of $250,000 have itemized deductions that would put their taxable income well below that $235,000 threshold.
The current rate for taxpayers in that income level is 33%, which now applies to taxable income starting at about $209,000. The current highest tax rate is 35%. That would rise to 39.6% under the Obama proposal. That bracket currently starts at about $373,000. The exact income level for that bracket in the 2011 tax year hasn't been determined yet.
Doug Holtz-Eakin, a former top adviser to Republican presidential candidate John McCain, said Monday's announcement might sound like backtracking. "The truth is it just wasn't clear," he said. "But the pledge was if you were making $250,000, you're safe. This doesn't sound exactly consistent with that."
But a senior administration official said the $250,000 threshold always referred to AGI. Another official defended the implementation of the proposal as "very conservative."
Rosanne Altshuler, the co-director of the nonpartisan Tax Policy Center, said the impact of the tax increase could be muted for many higher-income couples, and some might even see a tax cut. That is because the tax rate on some of their taxable income -- between about $209,000 and $230,000 currently -- would fall under the Obama proposal from 33% to 28%.
Administration officials also defended a related plan to reduce the value of deductions for people with AGI of $250,000 and up, as a way to help pay for the cost of overhauling the health-care system. The plan has run into serious opposition. But an official said it could yet become a viable solution, if other ways to pay for health care can't be found.
The administration also laid out plans to attack several offshore tax shelters, including one that aims to help investors receive corporate dividends without incurring U.S. withholding tax.
Two other proposals would go after techniques that multinationals use to minimize taxes by shifting around intangible property and internal debt among overseas subsidiaries. Yet another proposal would seek to put further limits on the foreign tax-credit system. The newest proposals would raise about $10 billion in the decade.
Business leaders have been sharply critical of the administration's proposed crackdown on offshore tax avoidance, including limits on companies' ability to defer U.S. taxes on their overseas income. The deferral system was intended to put overseas operations of U.S. companies on the same footing as their foreign counterparts.
"The proposed tax increases on U.S. companies by the Treasury threaten the jobs of tens of millions of U.S. workers and our future economic growth," said John Castellani, president of the Business Roundtable. "Adopting these changes will hamstring American competitiveness."
The administration believes the system has gotten out of hand in recent years, allowing excessive tax avoidance by multinationals, and also hurts domestic rivals and discourages U.S. job creation.
The tax increases, mostly taking effect starting in 2011, would raise about $351 billion over the next decade from investors and businesses -- including $36 billion from oil companies -- and another $615 billion over the decade from individuals earning more than $250,000.
The administration's plans also provided new details of its proposals to create a system of automatic enrollment in individual retirement accounts for many lower-wage workers who don't have access to savings plans at work. To make the system more valuable, it also is proposing to expand a tax credit that adds a government match for retirement savings for such workers.
Write to John D. McKinnon at email@example.com"