President Barack Obama today endorsed a plan by Senate Democratic leaders to impose a 5.6% surtax on income over $1 million per couple, beginning in 2013, to pay for his .? If a millionaire’s surcharge were passed and the Bush tax cuts are allowed to expire as now scheduled at the end of 2012, the top federal tax rate on salary, interest and dividend income above $1 million would hit 49%, including Medicare taxes.
“I’m fine with the approach they’re taking,’’ the President said a news conference in which he described his jobs push as “insurance” against a double-dip recession. “This jobs bill is fully paid for by asking millionaires and billionaires to pay their fair share...We can fight to protect tax cuts for folks who don’t need them, or we can cut taxes for every small business and worker in America. But we can’t afford to do both,’’ he said. He added that he still believes more fundamental reform of the tax code is needed.
Obama’s American Jobs Act would spend $175 billion to cut the worker’s share of the Social Security tax from 6.2% to 3.1% for 2012, providing an average tax cut per worker of $1,500 and a maximum $3,300 tax cut to a high-income worker. ?Another $65 billion would go to slice the employer’s share of the Social Security tax from 6.2% to 3.1% for the first $5 million in wages per firm and on any increase in a firm’s payroll, due to hiring or wage increases, up to a maximum of $50 million per firm. Another $5 billion would go to extend 100% bonus depreciation for 2012. The plan also includes $105 billion in infrastructure spending; $35 billion in aid to local governments to prevent layoffs of teachers, cops and firefighters and $62 billion would go for extended unemployment insurance and other programs for the unemployed.
The Jobs Act has little chance getting the 60 votes it needs to clear the Senate and no chance of passing the Republican controlled House. Obama is scheduled to meet this afternoon with Senate Democratic leaders who are currently planning to bring it to a vote next week.
Obama had proposed paying for his jobs package with a combination of ?backdoor tax hikes on those earning more than $250,000 (by limiting their deductions) and “loophole” closers that would curtail tax breaks for the oil and gas industry, corporate jets and hedge fund and private equity managers. But Senate Democratic leaders believe the $1 million cut off plays better with the American public as well as within their own caucus. (For example, some Senate Democrats from oil-producing states objected to Obama's $40 billion in proposed tax hikes on the oil and gas industry.)
At a Democratic leadership press conference Wednesday, Sen. Charles Schumer, some of whose New York constituents consider $250,000 middle class : “In the eyes of many, it is hard to ask more of households that make $250,000 or $300,000 a year. It also would affect too many small businesses, if you draw the line below $1 million. So we believe that $1 million is the right line.”? In a , Senate Majority Leader Harry Reid (D-Nev) repeated the Democrat’s reliance on pools in shaping their tax proposal.? Said Reid: “Two-thirds of people making more than $1 million a year said they would gladly contribute more. A supermajority of Republicans agrees, with two-thirds saying they supported the idea. And even a majority – 52 percent – of members of the Tea Party agreed.”
Under the Senate Democratic proposal, the 5.6% surcharge would apply to all income over $1 million. But the top rate would depend on both the source of the income and whether the Bush Tax cuts are allowed to expire, as currently scheduled, at the end of 2012. If those cuts expire, the top rate on ordinary income such as salary and interest will rise from 35% to 39.6% and the top rate on long term capital gains will rise from 15% to 20%. (The top rate on ordinary dividends would rise from 15% to 39.6%, although Obama and other Democrats have said they favor holding it down to 20%.)
In addition, as part of the health care overhaul Obama pushed through last year, an additional 3.8% “Medicare” surtax on investment income is scheduled to kick in at the start of 2013. That could raise the top tax rate on interest income, and possibly dividends above $1 million too, to 49%---39.6% plus 5.6% plus 3.8%. The new health law also, beginning in 2013, imposes a 0.9% Medicare surtax on salary income over $250,000 per couple---a surtax that brings the Medicare rate on high earners to 3.8%. Thus salaries too would face a top 49% rate.
Pressed repeatedly about whether his Jobs Act push wasn’t more about campaigning against Republicans in Congress than getting something through Congress, Obama wrapped up his news conference with this rejoinder: "I would want nothing more than to see a Congress act so aggressively that I can't campaign against them as a do-nothing Congress,
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