Author Topic: Obama to Offer New Tax Breaks for Workers in Election Year Budget Pitch  (Read 171 times)

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Offline mystery-ak

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Obama to Offer New Tax Breaks for Workers in Election Year Budget Pitch
Tuesday, March 4, 2014 07:21 AM


President Barack Obama will propose an expansion of popular tax credits for middle class and working poor Americans on Tuesday in a fiscal 2015 budget designed to serve as a blueprint for Democrats in this year's congressional elections.

The budget, which would also create automatic retirement accounts known as IRAs for some 13 million workers, has little chance of getting enacted.

But it codifies the president's policy priorities ahead of the November race, in which Democrats hope to keep control of the U.S. Senate and Republicans hope to expand their majority in the House of Representatives.

The budget signals a shift away from last year's emphasis on deficit cutting to a more pronounced focus on poverty reduction, a legacy-oriented goal the president is highlighting as he faces less than three years left in office.

Obama will unveil the document during a visit to a local elementary school at 11:30 a.m. EST (1630 GMT).

His proposal would expand the Earned Income Tax Credit, a government anti-poverty measure that is meant to encourage low-income Americans to work. The expansion would cover some 13.5 million people who do not have children.

It would also make the program available to younger workers who are not currently eligible, the White House said.

The expansion, which would cost $60 billion, would be funded by closing loopholes such as the tax break for "carried interest," profits earned by wealthy investors who run private equity and other funds.

The budget also puts an emphasis on saving for retirement. It proposes to create automatic Individual Retirement Accounts (IRA) for those who do not have access to savings plans sponsored by employers.

"About 13 million workers would begin contributing to retirement savings through auto-IRAs as a result of this proposal," the White House said.


The White House signaled last month that its new budget would not extend the olive branch to Republicans that was offered in its proposal a year ago.

Officials said the president would drop a suggestion to change how the government calculates inflation for Social Security and other federal benefits that could have led to income drops for older Americans.

The change, which was unpopular with Obama's base, was meant to show Republicans the president was serious about deficit reduction. But the White House did not feel Republicans responded with a similar concession and dropped the idea.

Instead, the 2015 document will include proposals to boost spending on infrastructure projects, job training, and preschool education programs - all Democratic priorities.

It expands a tax credit to help parents pay for childcare, benefiting 1.7 million families, and makes permanent a tax credit related to paying for college educations.

"The president's budget will show in real terms the choices we can make to expand economic opportunity and strengthen the middle class," the White House said.

The budget outlines how some $1.014 trillion will be spent on government agencies' discretionary programs ranging from the military to national parks. That level, roughly in line with this year's cap of $1.012 trillion, was set by a recent budget deal hammered out by lawmakers.

That figure is less than a third of the approximately $3.5 trillion the government is likely to spend next year. The rest will be paid out automatically through federal benefits programs that mostly care for the elderly and poor, including Social Security, Medicare and Medicaid.

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Online Oceander

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The (mythical) loophole for carried interest, in addition to being a mirage, even if closed, will not prevent investment funds from achieving the desired after-tax economic results.  First and foremost, many investment agreements contain so-called tax distribution provisions under which the investment fund makes distributions to its members to cover the recipient member's tax bill arising from that member's distributive share of the fund's income.  Since the carried interest is, basically, an interest in the investment fund, any fund manager/trader with a carried interest in a fund with such a provision would get a distribution from the fund's assets to cover the increased taxes.  Net result?  The manager/trader gets the same net after-tax economics and the investors themselves end up with less valuable investment interests than they would otherwise have had.

Of course, since an investor in a fund that is taxed as a partnership is only taxed on (a) its distributive share of the fund's income and (b) distributions to the extent those distributions exceed the investor's basis in its investment interests, reducing the fund's total assets means that at the end of the day there is less to distribute to the investors than there would otherwise be, resulting in those investors having less taxable income from such distributions than they might otherwise have.  Less income means less tax and therefore less revenue for the federal leviathan.
« Last Edit: March 04, 2014, 01:27:43 PM by Oceander »
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