President Barack Obama’s budget proposal includes numerous provisions that would result in higher taxes on the wealthiest Americans, solidifying his stance in what is shaping up to be a divisive topic.
The global and national economic crisis, Occupy Wall Street protests and rich Republican presidential candidates have done much to shape Obama’s platform for the 2012 presidential race, and class equality has become a hot-button issue.
Accountants may be the only segment of America that truly understands the complex nature of the US tax code. Generally speaking, applicable tax rates are determined on a sliding scale based on income; however, the real controversy at hand is the manner in which different forms of income are currently taxed.
“Regular” salaries are taxed as income on a progressive scale, but income derived from long-term capital gains and dividends are taxed at a flat rate that is typically much lower than the straight income tax. Obama’s plan would not only increase maximum income tax rates, but also increase the caps on these other forms of income.
Republicans and business owners were quick to reject the plan without equivocation. The backlash is due in large part to how wealthy Americans and businesses earn profit – through returns on investment in the form of capital gains and dividends. The budget would increase taxes on these income streams to at least 20%, up from a previous cap of 15%.
Lighter tax burdens on investment income was initially designed to help people save for the future, but the administration is now viewing the current tax code as unrepresentative of a larger reality wherein the rich are reaping all the rewards. The reason why billionaires can pay a lower tax rates than their secretaries, as Obama memorably mentioned in his most recent State of the Union address, is because ultra-wealthy individuals draw income from investment profit.
There is little question that Obama’s budget plan will fail to become law, but the President has sent his message to voters: America’s success is dependent upon equal contributions from all of its citizens.
Photo courtesy of Wikimedia Commons