Tax Issues in Election

Where we are… Average Federal Tax Rates by Income Group, %

Where we are… Bush Tax Cuts go into effect in 2001

About that 47%... The Urban-Brookings Tax Policy Center estimates that 46% of American households paid no federal income tax in 2011

Pay no income tax, but do pay payroll taxes Others (<1%) Who pays no taxes?

Where we are going…

10% 15% 25% 28% 33% 36% (married >$250k, single>$200k)R 39.6%

10% 15% 25% 28% 33% 36% (married >$250k, single>$200k)R 39.6% Marginal tax rates go up if Congress does nothing ……..

The Fiscal Cliff Across the board spending cuts and If Congress does nothing…. – Bush tax cuts expire, temporary payroll tax cuts expire, and other tax changes result in $536B tax increase --- about 21%--- in 2013 Average tax increase of $3,500 per family (5% of pre-tax income) Average tax increase of about $2,000 for middle quintile family (almost 4% of pre-tax income) – Economy likely to go back into recession Economic growth would decline at an annual rate of 2.9% in first half of 2013 Unemployment would rise to 9.1% by end of 2013 Source: Tax Policy Center and Congressional Budget Office.

Competing Tax Plans

Obama Tax Plan 10% 15% 25% 28% 33% 36% 39.6% Individual Income Tax Rates Obama Current PolicyRomney 10% 8% 15% 12% 25% 20% 28% 22.4% 33% 26.4% 36%35%28% 39.6% Married>$250K, Single>$200K

2% of taxpayers would face tax increase Obama Tax Plan 10% 15% 25% 28% 33% 36% 39.6% Individual Income Tax Rates Obama Current PolicyRomney 10% 8% 15% 12% 25% 20% 28% 22.4% 33% 26.4% 36%35%28% 39.6% Source: Tax Policy Center T (includes effect of higher rates on dividends and capital gains).

Obama Tax Plan Individual Income Tax Rates Obama Current PolicyRomney 10% 8% 15% 12% 25% 20% 28% 22.4% 33% 26.4% 36%35%28% 39.6% 2% of taxpayers would face tax increase Retains Bush tax cuts except at top Proposes 20% tax cut Source: Tax Policy Center T (includes effect of higher rates on dividends and capital gains).

Obama Tax Plan 10% 15% 25% 28% 33% 36% 39.6% 8% 12% 20% 22.4% 26.4% 28% Capital Gains Tax Rates Obama Current PolicyRomney 0% (15% tax bracket and below) 0% (15% tax bracket and below) 15% 23.8% (married>$250K, single>$200K) 15% (married>$200K, single>$100K) 0%

Obama Tax Plan 10% 15% 25% 28% 33% 36% 39.6% 8% 12% 20% 22.4% 26.4% 28% Tax Rates on Dividend Income Obama Current PolicyRomney 0% (15% tax bracket and below) 0% (15% tax bracket and below) 0% 15% 39.8% and 43.4% (married>$250K, single>$200K) 15% (married>$200K, single>$100K)

Obama Tax Plan 10% 15% 25% 28% 33% 36% 39.6% 8% 12% 20% 22.4% 26.4% 28% Tax Rates on Interest Income Obama Current PolicyRomney 10% 15% 25% 0% 28% 33% 36%35%26.4% 39.6%28.4% Married>$250K, Single>$200K Married>$200K, Single>$100K

Obama Tax Plan 8% 12% 20% 22.4% 26.4% 28% Estate Tax Obama Current PolicyRomney 45% with $3.5M exemption 35% with $5M exemption 0% About 3,600 estates in 2012 (less than 0.2 percent of deaths) Source: Tax Policy Center

Obama Tax Plan 8% 12% 20% 22.4% 26.4% 28% Limits on Tax Benefits? Obama Current PolicyRomney Yes. Value of some tax benefits limited to 28% for those in top two brackets None currently on major tax benefits Obama has identified for limits. Yes, but has not provided details and has taken limits on some benefits off the table. Limit deductions to $17,000?

Obama Tax Plan 8% 12% 20% 22.4% 26.4% 28% Corporate Tax Rate Obama Current PolicyRomney 28%35%25%

Obama Tax Plan 8% 12% 20% 22.4% 26.4% 28% What will all this cost? ObamaRomney Raises $1.7 T relative to current policy. Revenue neutral relative to current policy according to Romney. Loses almost $5T relative to current policy according to Tax Policy Center.

Where we are going… 22 Federal deficits, (Percentage of GDP) Deficits or Surpluses

Federal debt,

The budget over the next 25 years 24

The debt over the next 25 years 25

Three ways to tame the debt Economic growth Boosts revenue, lowers spending, eases debt burden 2. Reduce future spending Earmarks, foreign aid, etc. are small. Go where the money is: entitlements and defense 3. Increase future revenue About $1.3 trillion in tax preferences, many resemble spending Tax reform, new taxes (value-added, carbon, etc.)