Understanding President Obama’s Revenue Targets

By :: November 16th, 2012

President Obama and administration officials have offered two different revenue targets for the fiscal cliff debate: $1 trillion and $1.6 trillion (sometimes reported as $1.5 trillion). You might be wondering (I was) where those numbers come from.

The $1 Trillion

President Obama wants to extend the majority of the Bush-era individual income tax cuts—enacted in 2001 and 2003 and extended in 2010—except for those that affect only households with incomes more than $200,000 (single) or $250,000 (joint). In addition, he wants to return the estate tax to its 2009 structure, rather than the one that applies today. Together, those changes would increase revenue by $968 billion over the next decade, according to Treasury estimates, relative to a current policy baseline (i.e., a baseline that has income and estate taxes in their 2012 form).

That $968 billion, which rounds to $1 trillion, has the following components, all applying only to taxpayers with incomes above the president’s thresholds:

The $1 Trillion

All of the provisions in this list are part of the fiscal cliff, which is why the President has emphasized them—and the trillion-dollar figure—in his comments about dealing with the cliff. The larger number—the $1.6 trillion—arises in discussions about the larger fiscal deal that might accompany the cliff negotiations.

The $1.6 Trillion

In his budget last February, President Obama proposed $1.56 trillion in tax increases. In round numbers: $1.6 trillion, sometimes misreported as $1.5 trillion.

That figure includes the $968 billion noted above plus another $593 billion in tax increases.

The largest of those, by far, is the president’s proposal to limit the value of itemized deductions and certain exclusions for upper-income taxpayers. Under that proposal, upper-income taxpayers would benefit only 28 cents on the dollar for their charitable deductions, mortgage interest, employer-provided health insurance, etc., even if they are in the 36% or 39.6% tax brackets.

That provision would raise $584 billion. The rest of his tax provisions, including both cuts and increases, then net out to just $9 billion.

As rough justice, therefore, you can think of the president’s $1.6 trillion target as being almost entirely composed of his proposed tax increases on high-income households: $968 billion + $584 billion = $1.552 trillion. That ignores dozens of his other proposals, of course, but gives a good sense of what’s in his overall revenue aspiration.

P.S. For details on any of these proposals, please see TPC’s comprehensive analysis of the president’s tax proposals.

P.P.S. The President’s budget actually proposed $1.69 trillion in revenue increases. That’s the figure reported in Treasury’s summary of the proposals (known as the Green Book) and in TPC’s analysis of the president budget. The difference between that and the budget’s $1.56 trillion figure reflects some arcane budget presentation decisions. For example, the president proposed a $61 billion fee on banks that the Treasury reports as revenue, but the budget does not include in its tax section.

P.P.P.S. 2010’s health reform included new taxes on upper incomes that go into effect on January 1. Including those taxes, the top capital gains rate under the president’s proposal would rise to 23.8% and the top dividend rate to 43.4% (not including the effects of Pease).

43Comments

  1. Tax Roundup, 11/16/2012: Yes, failure is an option. And lawyers! « Roth & Company, P.C  ::  10:22 am on November 16th, 2012:

    […] Marron,  Understanding President Obama’s Revenue Targets (TaxVox): As rough justice, therefore, you can think of the president’s $1.6 trillion target as […]

  2. JTK  ::  11:11 am on November 16th, 2012:

    It would be really great if someone could definitively explain how the 28% limitation on itemized deductions would produce $584 billion over 2013-2022. An earlier publication from this website had it at $164 billion, I’ve seen $300 billion in earlier outside estimates from roughly 2009-2010, and CBO flatly gives it ~.5 trillion.

  3. Donald Marron  ::  1:13 pm on November 16th, 2012:

    Great question. Several factors drive these differences.

    1. The president expanded his proposal. When the president first offered this idea, he limited it to itemized deductions. He later expanded it to include some exclusions. That booosted Treasury’s estimate of the impact from the $300+ billion range several years ago to the $500+ billion range today.

    2. Model differences. Treasury, JCT (whose scores CBO reports), and TPC each maintain their own models of the U.S. tax system. They are similar in spirit, but differ in underlying assumptions both about the economy and about the functioning of the tax system. In this post, I used only Treasury estimates in order to highlight how the president arrived at his numbers.

    3. The baseline. The $164 billion figure published by TPC researchers in 2011 was measured against current policy (e.g., top rate of 35%). When Treasury estimated the impact of the president’s proposal, they used his preferred rate structure (e.g., top rate of 39.6%). Limiting deductions to the 28% rate raises much more revenue if you are comparing to a baseline with higher tax rates. (Indeed, the same TPC study calculated the impact versus current law–i.e., top rate of 39.6%–and came up with a figure of $288 billion. That’s much closer to the then-relevant Treasury figure for deductions, but still below because of modeling differences.

    4. Regular changes over time. Each year, all the estimators change their budget windows (e.g., from 2012-2021 to 2013-2022) and update their economic asumptions to reflect what’s happened in the economy. Both cause estimates to change over time.

  4. Michael Bindner  ::  2:20 pm on November 16th, 2012:

    This all happens automatically, which makes a big jump one hits the threshold levels of “upper income” by simply making the Bush cuts permanent or extending them. Ultimately, they are a sword of Damocles to force a deal on tax reform and simplification – something along the lines of Bowles Simpson or even Romney’s plan. The important things to watch are how quickly rich people sell off their portfolios to take advantage of the capital gains tax exemption at a lower rate (which will give a sugar high to the Treasury and might kick the debt limit down the road) and whether these well-off families start pushing hard on the GOP members to make a deal and throw Grover under the bus.

  5. Kent Crawford  ::  5:24 pm on November 17th, 2012:

    Think in terms of ObamaCare. The CBO already has estimated it will cost $1.7 trillion more than the 21 new taxes will bring in. Hence, all these tax increases will just about keep ObamaCare fiscally neutral.

    However, all the rest of gov’t borrowing would remain basically the same, with deficits around $1 trillion annually.

    In other words, this does absolutely nothing to reduce the deficit or cut costs.

  6. About Those Obama Tax Hikes… | Liberty News Network  ::  9:39 am on November 19th, 2012:

    […] efforts, it will result in a $442 billion tax hike over the next decade, a figure reached by the Tax Policy Center. Furthermore, when the $442 billion tax increase is combined with the remaining tax hikes in the […]

  7. JTK  ::  2:31 pm on November 19th, 2012:

    Ok, thank you. I’m especially intrigued with the “some exclusions” part, which seems to account for about half of the discrepancy. Which exclusions are they? I’m assuming health care or retirement savings, which both could get complex I would think.

  8. Secondary Sources: Obama Tax Plan, Public Housing, Work Injuries – Real Time Economics – WSJ  ::  8:17 am on November 23rd, 2012:

    […] –Obama Tax Plan: Donald Marron breaks down where the revenue come from in the president’s tax proposal. “In his budget last February, President Obama proposed $1.56 trillion in tax increases. In round numbers: $1.6 trillion, sometimes misreported as $1.5 trillion. That figure includes the $968 billion noted above plus another $593 billion in tax increases. The largest of those, by far, is the president’s proposal to limit the value of itemized deductions and certain exclusions for upper-income taxpayers. Under that proposal, upper-income taxpayers would benefit only 28 cents on the dollar for their charitable deductions, mortgage interest, employer-provided health insurance, etc., even if they are in the 36% or 39.6% tax brackets. That provision would raise $584 billion. The rest of his tax provisions, including both cuts and increases, then net out to just $9 billion. “ […]

  9. Conservative Media Promote Myths To Shield Wealthy From Tax Hikes | Hateriotic.org  ::  3:37 pm on November 24th, 2012:

    […] Policy Center: Obama To Restore 2009 Estate Tax Structure. According to the non-partisan Tax Policy Center, President Obama’s plan to alter estate tax policy – decreasing the maximum exemption […]

  10. Wonkbook: Thanksgiving’s over, but the fiscal talks are just beginning.  ::  6:47 am on November 26th, 2012:

    […] The Tax Policy Center’s Donald Marron explains: $1 trillion. $1.6 trillion. And so on. How to understand Obama’s revenue targets. […]

  11. The GOP’s claim that a tax hike on the wealthy would pay for only a week of spending — Financial Press  ::  6:42 am on November 28th, 2012:

    […] impact in later years. Over 10 years, the rate hikes and other provisions affecting the wealthy would raise $968 billion, or essentially one year of the current […]

  12. The Hope of Damocles « Token Dissonance  ::  8:03 pm on November 30th, 2012:

    […] escalate beyond reckoning. In the face of fiscal reality, the Maddow-approved Obama plan calls for $1.6 trillion in new revenue—up from $968 billion—over a decade and minor spending cuts that may very well be outmatched by […]

  13. What Defines A Serious Deficit Proposal? – NYTimes.com  ::  5:37 pm on December 1st, 2012:

    […] call for higher revenue through increased taxes on high incomes — which actually goes considerably beyond just letting the Bush tax cuts for the top end expire — gets treated with an unmistakable […]

  14. steeve  ::  5:50 am on December 2nd, 2012:

    The 1.7 trillion is fake. http://www.politifact.com/truth-o-meter/statements/2012/mar/21/ted-cruz/ted-cruz-says-health-reforms-price-tag-has-doubled/

    The correct response to this information is not “I stand corrected”, but “I will never again listen to the political party that spun me stupid”.

  15. Krugman defines what a “Serious” propsal means « Desert Dogmeh  ::  8:37 am on December 2nd, 2012:

    […] call for higher revenue through increased taxes on high incomes — which actually goes considerably beyond just letting the Bush tax cuts for the top end expire — gets treated with an unmistakable sneer […]

  16. Fiscal Policy Dysfunction and Fallacy « Sky Dancing  ::  7:40 pm on December 2nd, 2012:

    […] call for higher revenue through increased taxes on high incomes — which actually goes considerably beyond just letting the Bush tax cuts for the top end expire — gets treated with an unmistakable sneer […]

  17. Balloon Juice » Blog Archive » Early Morning Open Thread: Serious Punishment  ::  5:01 am on December 3rd, 2012:

    […] I thought I’d look at the dollars and cents — and even I am somewhat shocked. Those [high income] tax hikes [proposed by the Obama administration] would raise $1.6 trillion over the next decade; according to the CBO, raising the Medicare age […]

  18. So while the fiscal cliff — still a bad name for the looming austerity bomb, but I guess we’re stuck with it — is a bad thing from an economic point of view, it has had at least one salutary political effect. « jmhamiltonpublishing  ::  5:53 am on December 3rd, 2012:

    […] on in the election. In fact, however, the offer is more or less the same as Mr. Obama’s original 2013 budget proposal and also closely tracks his campaign […]

  19. Keller and Krugman « Marion in Savannah  ::  6:56 am on December 3rd, 2012:

    […] on in the election. In fact, however, the offer is more or less the same as Mr. Obama’s original 2013 budget proposal and also closely tracks his campaign […]

  20. WardMD  ::  5:09 pm on December 4th, 2012:

    So…

    We’re supposed to be all happy and excited that Obama’s Tax Increase proposal is SUPPOSED to raise around $98 BILLION per year (that’s $980 Billion OVER TEN YEARS) – while Obama has racked up OVER $1 TRILLION each year (with no end is sight)?!

    That means we’re STILL OVERSPENDING by $52 BILLION EACH YEAR!

    Get that?

    Obama would have to offer REAL CUTS IN SPENDING in the amount of AT LEAST $52 BILLION EACH YEAR – just to get back to being BROKE (having NOT ONE CENT left after all the tax REVENUES have been spent)!

    WHEN?

    WHEN are the Democrats going to get SERIOUS about NOT spending MORE than we take in?

    I hope all you youn adults (and kids, who aren’t even working yet) KNOW that YOU are going to be paying for this! YOU and YOUR KIDS and Grandchildren!

    At SOME POINT, we need to have ADULTS running the country (IF the current elected officials don’t bankrupt the country first)!

  21. Slinking Toward Retirement | The Big Budget Mumble – NYTimes.com | News, Travel, Opinion and Just Odd and Funny Things…  ::  11:01 pm on December 4th, 2012:

    […] on in the election. In fact, however, the offer is more or less the same as Mr. Obama’s original 2013 budget proposal and also closely tracks his campaign […]

  22. “The Big Budget Mumble”: Republicans Can’t Play Their Usual Con Game Of Just Saying No « mykeystrokes.com  ::  11:02 am on December 7th, 2012:

    […] on in the election. In fact, however, the offer is more or less the same as Mr. Obama’s original 2013 budget proposal and also closely tracks his campaign […]

  23. The Big Budget Mumble | LeftWingPost.com  ::  6:15 pm on December 7th, 2012:

    […] on in the election. In fact, however, the offer is more or less the same as Mr. Obama’s original 2013 budget proposal and also closely tracks his campaign […]

  24. Keepin’ It Real on the Estate Tax | Jared Bernstein | On the Economy  ::  8:02 pm on December 10th, 2012:

    […] revenue over 10 years, they’re including the estate tax resetting back to 2009 levels (along with other stuff…the rate increases on income just raise about $440 billion of the […]

  25. r lobb  ::  6:38 pm on December 12th, 2012:

    I love that Obama keeps touting that he isn’t going to raise taxes on the middle class. Has anyone realized that Obama care is a tax. And it will indeed hit the middle class and even the lower classes.

  26. About the Republican request for a balanced approach « FortLeft  ::  8:11 pm on December 13th, 2012:

    […] cuts Obama has either signed  into law or is endorsing now. That’s obviously greater than the $1.6 trillion in new tax revenue he’s seeking. (And that doesn’t even take into account automatic cuts  from the 2011 […]

  27. Exhibitions Sales Executive – Jobsandcareers.co.za  ::  3:59 am on March 21st, 2013:

    […] to existing and potential exhibitors to meet and exceed sales revenue targets.Selling to existing and potential delegates for aforementioned events to meet and exceed sales […]

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