Battle begins over who will pay more taxes

1 day

John W. Schoen , NBC News

One of the biggest political?battles in decades - how to spread the tax?burden of helping to?balance the federal budget - has just begun. It's likely that not many?taxpayers will emerge unscathed.

President Barack?Obama met Friday with Congressional leaders to begin work on an agreement over how ? or whether ? to raise more revenues to help pay down the deficit.?Both?sides?in the long-simmering debate have until the end of the year to head off hundreds of billions of?dollars in tax hikes scheduled to take effect in January.

The White House has said the president wants to raise some $1.6 trillion in new revenues over the coming decade ? mainly from top-income earners.?"When it comes to the top 2 percent, what I'm not going to do is to extend further a tax cut for folks who don't need it," Obama said at a news conference Wednesday.

The president campaigned on a plan that would raise the current top two tax brackets of 33 percent and 35 percent to 36 percent and 39.6 percent. Single taxpayers making less than $200,000 a year and married couples making less than $250,000, would not see their tax rates go up.

Republican opponents of the plan argue that the higher rates would hurt small businesses, many of which pay individual, not corporate tax rates. But the two new tax brackets would hit only 2.5 percent of small businesses, according to a recent report by the Center on Budget and Policy Priorities, a research group focused on issues affecting low- and moderate-income households, based on a Treasury Department analysis.?

The new rates would restore the top tax brackets to pre-Bush levels, which were already lower than for much of the last century. Until the sweeping tax reform in 1986, the top marginal rate was 50 percent or more, although most of the wealthiest households paid a much lower effective rate, thanks to dozens of loopholes and tax breaks that were eliminated by the tax code overhaul.

Now, the proposed new tax brackets would also apply to a relatively small number of households ? among the top two percent of incomes.? Most of the new revenues would come from the very top one-tenth of one percent, or those making an average of $8.4 million a year, according to a study by the Tax Policy Center.?

?The heated debate over whether to extend all of the tax cuts or whether to extend merely the vast majority largely concerns whether to extend an extra $310,000 in tax relief to the wealthiest 120,000 taxpayers,? wrote Tax Policy Center researcher Adam Looney.

Despite the sizeable income pool at the top, the new revenues raised by the proposed higher rates would be a drop in the deficit bucket, the study found, raising roughly $68 billion a year ? or about 7 percent of the current deficit. That leaves the White House roughly $920 billion short of its goal to raise revenues by $1.6 trillion over the next ten years.

A bigger source of new money will likely come from the expiration of a payroll tax ?holiday? for all wage earners that, for the past two years, knocked two percent off their payments into the Social Security system. ?Eliminating the payroll tax break, which seems likely, will add another $125 billion in revenues. ??

Social Security taxes already account for roughly 36 cents of every dollar the government collects in revenues, down from 42 cents before the recession of 2009 hit and the tax was cut to spur growth. That share of overall taxation had been steadily rising over the past few decades as increased lifespans have boosted the program?s future costs.

That leaves corporate income taxes ? the subject of a number of reform proposals - as another potential source of revenues for the federal government. In 2011, corporations paid roughly 8 cents of every dollar the Treasury collected, down from nearly 15 cents in 2005.?

Though official corporate tax rates in the U.S. are among the highest in world ? nearly 40 percent when state and local tax laws are combined ? numerous breaks and subsidies lower the effective tax rate - the amount companies actually pay -?to about a third of that, according to a Wall Street Journal analysis of tax data earlier this year.?

As a result, U.S. companies pay less in taxes, as a percentage of gross domestic product, than nearly all of their competitors in the developed world, according to the Tax Policy Center.

In 2008, U.S. companies paid taxes at all levels of government of about 26 percent of GDP, compared with an average of 35 percent among member countries of the Organization for Economic Co-operation and Development. Of those countries, the U.S. ranked fourth from the bottom in revenues raised from corporate taxes relative to GDP.?

Source: http://www.nbcnews.com/business/economywatch/battle-begins-over-who-will-pay-more-taxes-1C7118819

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