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(Updates with Clinton, McConnell comments starting in the 10th paragraph.)
Sept. 18 (Bloomberg) -- President Barack Obama will propose a new levy on U.S. taxpayers making more than $1 million to help trim the nation’s debt, adopting a suggestion from billionaire investor Warren Buffett, according to an administration official.
The tax will be among recommendations the president makes to a special congressional committee charged with finding ways to cut $1.5 trillion from the nation’s long-term deficit, according to the official who wasn’t authorized to speak on the record. Obama is set to unveil his deficit-cutting proposals tomorrow.
The president hasn’t settled on the top earners’ new minimum tax rate, which is designed to make sure the wealthiest taxpayers don’t pay a lower effective rate than middle-income earners, the official said. Obama has already proposed limiting some deductions for those in the highest income brackets, taxing carried interest as regular income and ending breaks for gas and oil companies to pay for a $447 billion jobs package.
The New York Times reported the president’s plan yesterday.
Any new tax will likely face opposition from Republicans, who control the U.S. House and have argued that raising taxes on higher-income individuals would hurt small businesses and stifle investment. A spokesman for House Speaker John Boehner didn’t immediately respond to a request for comment.
In a Sept. 15 speech to the Economic Club of Washington, Boehner, an Ohio Republican, said the 12-member panel should focus solely on cuts to federal spending and overhauling Social Security, Medicare and Medicaid to reach the $1.5 trillion in deficit cuts. He rejected tax increases.
“Tax increases, I think, are off the table, and I don’t think they’re a viable option for the joint committee,” he said.
Obama’s prime target is the differential between the tax rates on capital gains and ordinary income. Today’s 20 percentage-point difference gives taxpayers an incentive to find ways to reclassify wage income as investment income.
The 1986 tax overhaul signed by President Ronald Reagan equalized the two rates at 28 percent. Later increases in the ordinary rate and cuts in the capital gains rate created today’s gap between the 35 percent basic rate and the 15 percent rate that also applies to dividends.
Former President Bill Clinton, speaking on CBS’s “Face the Nation,” said Obama was right to focus on economic growth in the short term. Spending restraint, economic growth and new revenue will be needed to balance the federal budget over time, he said.
“Basically he’s asking us to return to the tax rates of the 90s for the wealthiest Americans who have been the big beneficiaries of the last decade, which has been very tough for middle-class and low-income people,” Clinton said.
Mitch McConnell, the Senate Republican leader, countered on NBC’s “Meet the Press” that tax increases like Obama proposed have already been rejected by lawmakers of both parties.
“It’s a bad thing to do in the middle of an economic downturn,” McConnell said. “It won’t just hit individuals. Over 700,000 of our most successful small businesses pay taxes as individuals.”
Republicans may be open to restructuring the tax code in a way that raises revenue, as long as the revenue increases come through economic growth, not higher rates, said McConnell, a Kentucky Republican. They also want to look at means-testing, or cutting off entitlement programs for higher-income people, for Social Security and Medicare, he said.
“If Warren Buffett would like to give up some of his benefits, we’d be happy to talk about it,” McConnell said.
The bipartisan panel has a Nov. 23 deadline to reach agreement on a plan. On taxes, the group is likely to consider setting targets for major changes to be considered over the next year, before income-tax cuts first enacted under President George W. Bush are set to expire at the end of 2012.
With the nation’s jobless rate at 9.1 percent, the economy is a top issue for both parties in next year’s elections for president and Congress. Obama is confronting skepticism from voters about his policies as public opinion polls show his approval ratings are dropping.
A majority of Americans don’t believe his jobs plan will help lower the unemployment rate, a Bloomberg National Poll conducted Sept. 9-12 shows. The poll found 62 percent disapprove of his handling of the economy. The president’s overall job- approval rating was 45 percent, the lowest since he was inaugurated in January 2009.
Gross domestic product climbed at a 1 percent annual rate in the second quarter, down from a 1.3 percent prior estimate, according to revised Commerce Department figures released last month. Combined with the 0.4 percent annual rate of growth in the first three months of the year, the past two quarters were the weakest of the recovery that began in mid 2009.
Buffett has served as an informal adviser to the president since Obama’s 2008 election campaign and conferred with the president before his Sept. 8 address to Congress. He plans to hold a Sept. 30 fundraiser in New York City for Obama’s re- election bid.
Obama has cited Buffett to counter critics of his policy proposals, particularly on taxes.
During his bus tour last month through rural areas of Minnesota, Iowa and Illinois, Obama quoted from a New York Times opinion article in which Buffett wrote that the nation’s richest individuals have been “coddled long enough by a billionaire- friendly Congress.” Buffett argued for raising taxes for the “mega rich” in the U.S.
In the article, the 81-year-old chairman and chief executive officer of Berkshire Hathaway Inc. said his federal tax bill last year, or the income tax he paid and payroll taxes paid by him and on his behalf, was $6,938,744.
“That sounds like a lot of money,” Buffett wrote. “But what I paid was only 17.4 percent of my taxable income -- and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”
About 8.4 million U.S. households had assets of $1 million or more, excluding primary residences, according to a March report by Spectrem Group, a Chicago-based consulting firm. It also showed that the number of U.S. millionaires increased by 8 percent in 2010.
--With assistance from Richard Rubin and Jeff Plungis in Washington. Editors: Joe Sobczyk, Fred Strasser
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