Taxes are at the center of every major budget fight gripping Washington. Democrats and Republicans simply do not agree on whether taxpayers should be asked to shell out more in order to reduce government borrowing. That's why Congress and the White House couldn't settle on a plan to avoid automatic spending cuts that took effect last month. And that's why Washington could be headed for another debt crisis this summer, when Congress once again will have to increase the government's credit limit or risk an unprecedented default.
In the latest twist, President Barack Obama proposed a 2014 budget that, if adopted, would break his promise to avoid any tax increases for middle- and low-income people.
The campaign promise:
In both his campaigns for the White House, Obama promised to raise taxes on individuals making more than $200,000 and married couples making more than $250,000. No one making less will get a tax increase, he vowed many times.
In last year's campaign, Obama said people who make more than $1 million a year should pay at least 30 percent of their income in federal taxes. He called it the "Buffett rule," named after billionaire investor Warren Buffett, an Obama supporter who favors higher taxes for the rich. But for others? He said in his 2012 State of the Union speech, "If you make under $250,000 a year, like 98 percent of American families, your taxes shouldn't go up."
Obama got his first chance to raise taxes on the wealthy at the end of 2010, when a massive package of tax cuts first enacted under President George W. Bush expired. He flinched and agreed to extend all the tax cuts through the end of 2012.
The next time, he pledged, would be different. And it was. After weeks of negotiations and brinkmanship, Congress voted Jan. 1 to extend the tax cuts on income below $400,000 for individuals and $450,000 for married couples. Those making more saw their top income tax rate increase from 35 percent to 39.6 percent.
So Obama kept his promise to raise tax rates on the wealthy, though he did so at different income levels than he'd pledged in the campaign. In accepting higher rates on the rich, Republican leaders broke their promises to hold the line on tax increases.
But now Obama is proposing to raise taxes on just about everyone, including people who make less than $200,000.
Each year, income tax brackets are adjusted so people don't get a tax increase simply because their wages kept pace with inflation. In his 2014 budget proposal, Obama proposes adopting a new measure of inflation that would result in smaller adjustments to the tax brackets each year.
That would result in tax increases for most people, especially low-income workers, who would see more of their income subject to the income tax.
The president also wants to raise taxes on the wealthy even more by eliminating some of their tax breaks and by imposing the Buffett rule.
Republicans are balking, and they're unlikely to budge after vilifying the idea for more than a year as a political gimmick.
All these issues probably will peak this summer when the government again reaches the limit of its authority to borrow money. That's expected to happen in August.
GOP leaders in Congress say any increase in the debt limit must be accompanied by significant spending cuts. Obama, however, says additional spending cuts must be coupled with higher tax revenues.
If this sounds familiar, it's the same fight Congress and the White House have been waging since 2011 – the last time the federal government ran up against the debt limit. Stay tuned for summer reruns. And don't bet the farm on the Buffett rule coming to pass.
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