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- iHaveNet.com: Economy
by Rob Silverblatt
Perhaps the most obvious of financial truisms is that there's no such thing as a one-size-fits-all national budget. And with the economic forecast looking more incoherent than ever, it's also the most problematic of truisms for President Barack Obama and his $3.8 trillion spending plan for 2011.
[See Obama Retirement Proposals Tell a Sad Story.]
On the one hand, the economy is stumbling back from a savage recession, helped along, the Obama administration vigorously claims, by ambitious government stimulus plans. But at the same time, record deficits have forced the administration to temper its spending and to toe a contentious line.
As was expected, the budget that emerged from these dynamics has unleashed a mixed bag of emotions and compromises. Wealthy Americans and big business bemoaned yesterday an estimated $1.9 trillion in tax increases, even as small businesses and low- and middle-income families gladly accepted a host of proposed financial incentives. Meanwhile,
Losers
The moon. Obama's budget would put an end to Constellation, a
"The president's proposed
Obama's new model for
Howard McCurdy, a public affairs professor at
The rich. Under Obama's proposal, Bush-era tax cuts would be allowed to expire for individuals making more than $200,000 per year and for married couples who earn more than $250,000. Obama has also proposed increasing from 15 percent to 20 percent the capital gains tax rate for Americans in those wealth brackets.
"The tax hikes are basically on the rich," says Gerald Prante, an economist with the
Meanwhile, Obama is also trying to reduce the tax breaks that families with over $250,000 get when they make charitable contributions. "Currently, if a middle-class family donates a dollar to its favorite charity or spends a dollar on mortgage interest, it gets a 15-cent tax deduction, but a millionaire who does the same enjoys a deduction that is more than twice as generous," the budget reads. "By reducing this disparity and returning the high-income deduction to the same rates that were in place at the end of the
In a related move, the budget would end the preferential tax treatment that hedge fund and private equity managers receive, forcing them to pay normal income taxes on their profits. Previously, they had been allowed to pay capital gains rates. This would bring in $24 billion in additional tax revenue over 10 years.
Roberton Williams, a senior fellow at the Tax Policy Center, says that this plan predates the backlash that hedge funds have experienced in the wake of the Bernard Madoff saga.
"I think it was a concern just because those folks were making lots and lots of money and being taxed at a very, very low rate relative to other high-income individuals," he says. "So it was raised mostly as an issue of high-income people facing low tax rates, not as an issue of [backlash] against the financial excesses that we saw."
Banks, oil companies. Obama's much-anticipated bank tax also made it into the budget. The tax, which would be imposed on the nation's largest financial institutions, would produce $90 billion over the course of a decade.
The budget also targets oil and natural-gas companies, which would lose $36.5 billion in tax cuts over 10 years. "We cannot continue to ignore the clean energy challenge and stand still while other countries move forward in the emerging industries of the 21st century," Obama said in the introduction to the budget.
Prante says that the oil and bank taxes are both part of a larger populist agenda. "Like banks, they're not very popular," he says of oil companies.
Winners
Space commercialization. The budget gives
This funding could touch off a tidal wave of proposals from private companies that are eager to tap into the space industry. It also represents the shifting dynamics that
"When we flew to the moon, the astronauts all wore [matching] suits and...worked for
Small businesses. The spending plan would increase the
Meanwhile, community banks would get access to $30 billion to lend out to small businesses. The money would come from the funds that Wall Street firms have paid back to the government in the aftermath of the $700 billion bank bailout.
[See Obama Courts Small-Business Owners.]
Elsewhere in the budget, small businesses get a number of tax benefits, including breaks for companies that hire new workers. These measures, along with the others, keep up the tone that Obama set in the State of the Union, when he made small businesses a priority.
"It appears that there's certainly a good amount of emphasis being placed on small businesses in this budget," says Molly Brogan, a spokesperson for the
Low- and middle-income Americans. The budget calls for a one-year extension of the Making Work Pay tax credit. This credit offsets
At the same time, Obama is also looking to permanently extend the American Opportunity Tax Credit, which affects parents and students who are paying for college tuition. The credit gives $2,500 per year to single filers who make less than $80,000 and to married couples who earn less than $160,000. The budget would also increase tax breaks for families who have child-care expenses.
Overall, though, the proposed credits do little to expand the safety net that low- and middle-income families already have. Instead, for the most part Obama is proposing an extension of his previous policies. "The proposals are not very different from what they were last year," says Williams.
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Breaking Down Obama's Budget | Rob Silverblatt