In his final budget request, President Obama submitted a $4.1 trillion budget proposal this week for fiscal year 2017.
The budget is based on a projected deficit of $503 billion in fiscal year 2017. The plan proposes to cut deficits by $2.9 trillion over 10 years by reducing tax breaks for high earners, garnering new savings from health-care reforms and other programs, and increasing revenues from expected economic growth. Reducing tax benefits for high-income households alone is expected to cut the deficit by more than $955 billion, the budget noted.
The budget is largely viewed as a political wish list as the President presents his vision for his final year in office. Congress is not expected to approve the budget, but can move forward on select items if they choose. House and Senate budget committee chairmen announced in advance that they would not hold hearings on this year’s White House budget.
- The package proposes eliminating the mandated budget-cutting sequestration on both defense and domestic spending beginning in 2018.
- The budget introduces a $10-a-barrel tax on oil companies that would be used to support a Clean Transportation System. The plan would increase investments in clean transportation infrastructure by 50%. The proposal also includes a five-year plan to increase R&D investments driving private and public clean energy innovation.
Additional spending initiatives
- More than $11 billion for the Department of Defense and Department of State to fight the Islamic State
- A $19 billion expenditure to improve cyber security
- A 4% increase in research and development funding, including a new $1 billion investment to boost cancer research
- An investment of $700 million for agriculture and food research
Programs to support higher education
- Increase funding to provide all students with access to computer science education
- Reform Pell Grants with new proposals to encourage students to accelerate their programs by attending school year-round and taking more credits per term
- Establish a Community College Partnership Tax Credit to make two years of community college free for students
- The budget seeks to expand Medicaid
- The proposal would reform the calculation of the excise tax on high-cost employer-sponsored health coverage so businesses located in areas where health costs are high would not be unfairly taxed. The Affordable Care Act’s “Cadillac tax” was delayed and is set to take effect in 2020.
Tax reform recommendations
The budget proposes to close tax loopholes for high-income households, institute fees on large financial firms, and cap itemized deductions and other tax preferences to 28%.
The budget would:
- Increase the top tax rate on capital gains and dividends to 28% (including the 3.8% net investment income surtax) and end the “stepped-up basis,” which allows appreciated property transferred upon death to avoid a capital gains tax.
- Establish a new fee for large, financial institutions. The provision would charge a cost to leverage for large firms with assets over $50 billion.
- Limit the value of most tax deductions and tax preferences to 28%. The restriction would apply to couples with incomes of $250,000 or higher or to single individuals with incomes higher than $200,000.
- Eliminate the “carried interest” tax provision that allows investment fund managers to take advantage of preferred capital gains tax rates. The budget would also prevent wealthy individuals from using loopholes to accumulate large amounts in tax-favored retirement accounts. Additionally, the budget would end provisions that allow some high-paid professionals to avoid paying Medicare and Social Security payroll taxes.
Again this year, the White House proposes to institute the Buffett Rule requiring that millionaires pay no less than 30% of income in taxes.
A series of proposals to expand access to workplace retirement savings plans is also part of the budget request.
The budget deficit dropped to a $439 billion last year. But the Congressional Budget Office projects that expenditures will outpace revenue for the next decade. The deficit is expected to increase modestly through 2018 and rise more sharply, reaching $1.4 trillion in 2026.