More than three months into 2013 — after having survived the fiscal cliff and sequester crises, at least temporarily — the United States budget is still held captive the unwavering and opposing positions held by congressional Republicans and Democrats. President Obama, who has made overtures to the opposition party numerous times, has placed yet another offer on the table, which is expected to meet widespread criticism from both sides as have many of his other suggestions.
The Obama budget will be unveiled on Wednesday, but already, some details have emerged. In keeping with a key platform of the Democratic party, the president has outlined a new solution to raise tax revenue. In order to generate higher revenues for the federal government, the proposed scheme will cap the tax-favored retirement accounts of some private-equity executives and self-employed professionals at $3 million. Further details will be flushed out on April 10, but this new tax would raise $9 billion for the government over the next decade, according to the White House.
Multimillion-dollar retirement accounts were first earmarked as possible sources of tax revenue when Republican presidential candidate Mitt Romney disclosed that his IRA had a maximum value exceeding $100 million, bringing retirements accounts to the forefront of the national debate, according to Bloomberg.
Obama — who pushed Congress to increase top marginal tax rates on ordinary income, capital gains, dividends, and estates in his first term — is now attempting to source additional revenue from some of the same areas. His budget plan will be supported by additional revenue-raising proposals, and be paired with spending cuts, in another effort to come to a grand bargain with Republicans to trim the deficit…
But, in this case, both Republicans and Democrats are dubious of his latest budget proposal.
The president’s budget, which follows two very very different 2014 budget frameworks passed separately by the Senate and the House of Representatives, is not expected to be enacted. Republicans will not agree to the new taxes without more significant spending cuts, while Democrats are worried that his plan will result in smaller-than-promised Social Security benefits.
As Bloomberg reported, it is not simply private-equity executives who will be subjected to higher taxes. Self-employed business owners, like doctors and lawyers who have their own practices, can contribute up to $51,000 per year to their IRAs, which makes it relatively easy for such individuals to accumulate $3 million over a carrier without using unusual investment strategies, as McDermott Will & Emery partner Bobbi Bierhals told the publication.
“This is going to be seen as a disguised rate increase” that will alter estate and retirement planning, John Olivieri, a partner in the private clients group of White & Case, added. “Clients have typically tried not to touch this money ever, because it’s subject to tax.” IRAs are retirement accounts that allow workers to contribute money without paying takes up front.
For Democratic representative Sander Levin of Michigan, the tax makes sense. “It’s one of the ideas that we need to look at as we need additional revenues,” the congressman said to the publication. He has warned that $1.2 trillion in federal spending cuts that began March 1 would significantly harm defense programs and unemployment insurance.
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