President Obama Seeks to Make Tax Code More Progressive

Congress passed the “fiscal cliff” legislation in early January 2013 that prevented the expiration of the “Bush tax cuts” for middle and lower class Americans.  However, it is interesting to examine what the Obama administration hoped would occur in terms of tax policy.  President Obama wanted to raise income taxes on Americans earning more than $200,000 a year, and couples earning more than $250,000.  The President also hoped to tax dividends at ordinary federal income tax rates (as high as 39.6) rather than at preferential rates (15 percent in 2012, and 20 percent in 2013).

The President’s hope in championing higher tax rates on high-income taxpayers is to raise more revenue and to increase the tax code’s progressivity.  In 2012, the Tax Policy Center, a nonpartisan research organization, estimated that the President’s 2012 budget proposal, if enacted, would result in an average increase of over $184,000 for those taxpayers with adjusted gross incomes over $1 million.

Critics of the President’s proposals point out that treating a couple making $250,000 the same as people earning millions is unfair, especially considering that the $250,000 may not qualify as “wealthy” in large urban areas, especially if the couple have children.  In addition, conservative critics question whether the federal government needs more tax revenue, or whether it needs to rein in spending.