The candidate’s policies are broken into four categories: tax, health care, energy, and other spending/savings. To show the effect when programs are fully in place, estimates of budget effects are for 2013. Policies that would enlarge the deficit (or reduce the surplus) are shown as negative numbers, and those that would reduce the deficit (or increase the surplus) are shown as positive numbers.
Extend Some of the 2001 and 2003 Tax Cuts: -$294 billion. Senator Obama supports renewing and making all of the major tax cuts enacted in 2001 and 2003 permanent for families making less than $250,000, which will otherwise expire at the end of 2010. The cuts include the four lowest marginal income tax rates, the expanded child tax credit, reduced marriage penalties, and various other provisions. In developing its proposals, the Obama campaign assumed for the purposes of its baseline that the rest of the 2001 and 2003 tax cuts would be renewed and then proposed reversing several of the cuts in order to pay for other proposals. This estimate is the cost of making all of the tax cuts permanent.
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Increase Income Taxes on Higher Earners: +$48 billion. To pay for his health care plan, Senator Obama would allow the top two tax brackets of the individual income tax -- currently 33% and 35% -- to return to their pre-2001 levels of 36% and 39.6%, respectively. He also would allow Pease and PEP rules to be reinstated for those making over $250,000 a year, which would phase out certain tax benefits for these earners.
Raise Capital Gains and Dividends Taxes on Higher Earners: +$28 billion. Senator Obama would maintain the current capital gains rates and dividends rate of 0 and 15% on capital gains for families making $250,000 or less and create a new higher 20% bracket for those making more than $250,000.
Reinstate a Smaller Estate Tax: +$44 billion. Under current law, the estate tax will disappear completely in 2010 and reemerge in 2011 for all estates worth over $1 million with a top rate of 55%. Senator Obama would instead freeze the estate tax at its 2009 levels. This would create a permanent estate tax with a top rate of 45% and a $3.5 million exemption ($7 million per family).
Patch the Alternative Minimum Tax: -$106 billion. Senator Obama has not specified a plan to address the Alternative Minimum Tax, although he has supported efforts to fix the AMT in a “fiscally responsible manner” in the past. We assume that he would support continuing the current policy of providing annual patches to prevent middle class taxpayers from having to pay this tax.
Make the Research and Experimentation Tax Credit Permanent: -$10 billion. The Research and Experimentation Tax Credit (commonly referred to as the R&E or R&D credit), which provided a 20% tax credit for qualified research expenses, expired on December 31, 2007. Senator Obama would renew the credit and make it permanent.
Create a Universal Refundable Mortgage Credit: -$13 billion. Senator Obama would create a universal mortgage credit equal to 10% of interest payments for homeowners who do not itemize and therefore can’t take advantage of the current mortgage interest tax deduction. We assume the credit would be capped at $800 a year.
Create a “Making Work Pay” Tax Credit: -$72 billion. Senator Obama supports providing workers with a refundable tax credit equal to their share of the Social Security payroll tax (6.2% of payroll) on their first $8,100 of earnings. The credit would offer a maximum benefit of $500 per worker ($1,000 per family), would be indexed for inflation, and would be phased out for singles starting at $75,000 and for married couples starting at $150,000.
Eliminate Income Taxes for Many Seniors: -$7 billion. Senator Obama would exempt senior citizens making less than $50,000 from paying income taxes. The policy would be phased out above $50,000.
Expand the Earned Income Tax Credit: -$5 billion. Senator Obama supports increasing the number of individuals eligible for the EITC, as well as increasing the size of EITC benefits. He would change the rules so more working parents could receive the credit, increase benefits for parents who fulfill their child support obligations, increase benefits for families with three or more children, and reduce the EITC marriage penalty by increasing the phase-out threshold for joint filers.
Modify the Saver’s Credit and Implement Auto-Saving: -$21 billion. Senator Obama would make the Saver’s Credit refundable and increase it to cover 50% of qualified savings up to $500 for individuals ($1,000 for families making less than $75,000). The credit would be automatically deposited in an individual’s savings account. Senator Obama would also require that employers automatically enroll workers in company pension plans or IRAs, although employees could choose not to participate.
Create a New College Tax Credit: -$13 billion. Senator Obama would create a new “American Opportunity Tax Credit” and would integrate the HOPE and Lifetime Learning Credits so that individuals could not claim both credits simultaneously. The new credit would be refundable and offer a maximum benefit of $4,000. The American Opportunity Tax Credit would be contingent upon students completing 100 hours of community service.
Expand the Child and Dependent Care Tax Credit: -$3 billion. Senator Obama would make the CDCTC refundable and increase it to cover up to 50% of the first $3,000 of child or dependent care expenses ($6,000 for multiple children) rather than up to 35% as under current law. According to the Tax Policy Center, he would also double the threshold for qualifying for the maximum credit from $15,000 a year to $30,000 a year.
Tax Carried Interest as Earned Income: +$2 billion. Senator Obama would tax the income earned by partners for performing investment management services at normal income tax rates, instead of the current practice of taxing them at the long-term capital gains rate (typically 15%).
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Close Tax Loopholes and Shelters: +$75 billion. Senator Obama would seek to reduce tax shelter abuses, close the tax gap between taxes owed and taxes paid, and eliminate many corporate loopholes and tax breaks for certain industries or special interests. In particular, he would eliminate tax breaks for gas and oil companies; close the so-called CEO pay loophole that allows companies to avoid taxation on stock options offered to highly paid executives; require better capital gains reporting; and go after income being sheltered overseas by putting pressure on tax haven countries and companies involved in tax sheltering, while altering certain multinational tax deductions. Additionally, the campaign has said that an Obama administration would look for other sources of new revenue.
Cut Corporate Taxes: -$13 billion. Senator Obama would use some of the revenue raised from closing corporate tax loopholes and increasing the capital gains rate to cut corporate taxes. Specifically, Senator Obama would eliminate capital gains taxation on investment in small and start-up firms. Additionally, he would lower corporate income tax rates for businesses that start or expand operations within the United States.
Increase the Future Payroll Tax on High Earners: 0. To bring additional revenue into the Social Security system, Senator Obama supports creating a new tax on workers earning more than $250,000 a year. This tax would take effect in 2018 or later with a rate of between 2% and 4% of payroll (split between employer and employee). It would supplement the current 12.4% Social Security payroll tax that is levied on the first $102,000 in wages.
Total Budget Effect of Tax Policies in 2013: -$360 billion.
Health Care Policy
Expand Health Care Coverage: -$65 billion (net of savings). Senator Obama’s health care plan would require large employers to offer insurance or to pay a tax and would separately mandate that all children be insured. Individuals would have the option of keeping their employer coverage, purchasing insurance from a national health insurance exchange, or opting into a public plan similar to Medicare. Medicaid and SCHIP would be expanded while individuals who did not qualify for these programs would receive an income-related federal subsidy to purchase insurance. Additionally, small businesses would receive tax credits to provide health insurance to their employees.
Reduce Overall Health Care Costs: $0 (savings included in costs). Senator Obama has proposed a number of measures to slow the growth of health care costs, including health care information technology, research on the comparative effectiveness of treatments, more transparency within the health care system, and the use of more coordinated care and disease management. He also supports a performance-based payment system, reforming medical malpractice insurance, and reforming Medicare including by eliminating subsidies to private Medicare Advantage plans. By expanding health insurance coverage, the campaign says they will be able to cut disproportionate share hospital (DSH) payments which currently go to hospitals that treat large numbers of uninsured individuals. All savings are included in the estimate of the coverage program.
Close the “Doughnut Hole” in Medicare Part D: -$43 billion. Under the standard Medicare prescription drug program, the government covers 75% of the cost of prescription drugs up to $2,510, does not cover any costs until total prescription drug spending reaches $5,726, and then covers 95% of costs. Senator Obama would close this coverage gap as part of a spending-neutral reform of Medicare (see below). If they were unable to raise the necessary savings, the Obama campaign has said they would only partially close the doughnut hole to ensure spending-neutrality.
Reduce Medicare Costs: +$43 billion. To finance the closing of the doughnut hole, Senator Obama would legalize the reimportation of certain prescription drugs and allow the federal government to negotiate Medicare Part D drug prices directly with pharmaceutical companies. He would also ban drug companies from paying generic producers to refrain from entering drug markets, while increasing the use of generics in public programs. The campaign has said they would undertake additional measures as necessary to fully pay for any expansions to Medicare Part D.
Total Budget Effect of Health Care Policies in 2013: -$65 billion.
Implement a Cap-and-Trade System: +$100 billion. Senator Obama supports the creation of a cap-and-trade system to limit greenhouse gas emissions. All companies that emit greenhouse gases would be required to obtain permits auctioned by the government. According to the Congressional Budget Office, the permits could be worth between $50 billion and $300 billion annually by 2020. We assume $100 billion in revenues. Under the Obama plan, all revenues would be spent on energy-related initiatives or on rebates to individuals.
Provide Tax Rebates and Transition Assistance: -$85 billion. The majority of revenue raised under Senator Obama’s cap-and-trade system would be used for tax rebates and other transition relief initiatives designed to assuage the impact of higher energy prices on individual communities and consumers.
Invest in Green Technology: -$15 billion. Senator Obama would invest $150 billion over 10 years in the development and commercialization of clean energy technology. This money would be used on programs to double clean energy research, extend the production tax credit for five years and create a clean tech venture capital fund that would pair with existing investment funds to encourage the creation and development of clean energy solutions and bolster financial support for environmental innovation.
Total Budget Effect of Energy Policies in 2013: $0.
Increase Pre-K - 12 Education Spending: -$18 billion. Senator Obama supports a number of policy proposals related to education. They include investing $10 billion per year in developmental programs for children under the age of five, reforming No Child Left Behind, helping future teachers finance their education, and offering financial incentives to teachers who spend time mentoring students.
Create Infrastructure Reinvestment Bank: -$6 billion. Senator Obama has called for the creation of a national infrastructure reinvestment bank that would invest $60 billion over 10 years in highways, technology, and other infrastructure projects. Funds would go primarily to projects related to homeland security, improving the environment, and economic growth.
Increase Spending on Basic Research: -$15 billion. Senator Obama has proposed to increase funding for basic research in physical and life sciences, mathematics, and engineering at a rate that would double basic research budgets over the next decade. He would also invest $50 billion over five years in information technology.
Expand Support for Higher Education: -$9 billion. Senator Obama supports creating a Community College Partnership Program, increasing funds for college readiness programs and expanding Pell Grants. Senator Obama would increase the maximum size of the Pell Grant for low-income students by ensuring the grant keeps pace with inflation.
Reduce Erroneous Payments and Use Purchasing Cards: +$6 billion. Senator Obama would reduce the number of improper payments made by the federal government in programs such as Medicare, Medicaid, Earned Income Tax Credit, and Social Security. He would also expand the use of purchasing cards to standardize government purchasing while increasing the government’s negotiating power.
Reform Government Spending: +$17 billion. In order to finance his education plan, Senator Obama would reduce the practice of earmarking, which allows members of Congress to direct funds to a specific (and often local) project during the legislative process. Additionally, he would reform federal contracting procedures, reduce federal energy consumption, and would auction off surplus federal property.
Eliminate the Federal Education Loan Program: +$3 billion. Senator Obama would eliminate current subsidies and guarantees to private banks and lenders who offer student loans and increase funding to the current direct loan program. The savings would be used to fund his college tax credit.
Double Foreign Aid: -$25 billion. To reach the Millennium Development Goal of cutting extreme worldwide poverty in half by 2015, Senator Obama has proposed doubling the current U.S. foreign aid budget from $25 billion a year to $50 billion a year.
Increase the Size of the Military: -$20 billion. Senator Obama has proposed increasing the size of the Army and Marine Corps. More specifically, he has declared his support for the current policy of adding 65,000 soldiers and 27,000 Marines. He would also strengthen the National Guard and Military Reserves, build up special operations forces capacity, and invest in military infrastructure.
Initiate a Phased Withdraw from Iraq: +$55 billion. Senator Obama has said that he would begin bringing troops home immediately with the ultimate goal of having all combat troops out of Iraq within 16 months of his taking office. He has also said that he would keep some noncombatant troops in and near Iraq to protect U.S. embassies and diplomats, while carrying out targeted strikes on al-Qaeda. We assume that Obama would reduce the number of troops in Iraq and Afghanistan to 30,000 by 2010.
Implement Unspecified Cuts to Slow Spending: +$50 billion. The campaign has said an Obama administration would reduce wasteful spending and eliminate obsolete programs in all areas of the budget, while directing agencies to identify wasteful and inefficient programs for a total of $50 billion in savings. Although the campaign has not announced many specifics, it has stated that Obama would achieve the savings by identifying redundant and lower-priority programs and slowing their growth.
Total Budget Effect of Other Spending/Savings Policies in 2013: +$ 38 billion.
This summary was drawn from a longer report by the Committee for a Responsible Budget that assesses the impact on the budget of proposals by each presidential candidate. To read the committee's entire analysis, including side-by-side charts that make it easy to compare the candidates’ proposals, footnotes explaining the source of the estimates and the methodology used by researchers, click here.