- Days left

How Obama's Budget Proposal May Increase Your Taxes Next Year

Will President Obama's proposed 2012 budget result in higher taxes?With new faces in Congress, President Obama knows his $3.73 trillion budget will be a hard sell. That's why he took his message to the airwaves this week, making TV appearances and issuing statements calling for "tough choices and sacrifices."

A top priority of Obama's budget plan is to hack away at the deficit, cutting it by $1.1 trillion over the next decade. Americans are concerned about the deficit -- since 2002, we've managed to dig a hole worth $1.65 trillion, an all-time record. That figure is so huge, it represents more in deficit spending than we currently have dollars circulating.

But Americans are also concerned about how they might be paying down the deficit via their taxes.Obama's proposal does include two-thirds of its deficit savings through spending cuts, including a five-year freeze on discretionary spending outside of security, which will save more than $400 billion over the next decade.

But the final third of deficit savings would come from tax increases. The tax deal that was negotiated in December 2010 was meant to be temporary -- most of the tax cuts in the deal are limited to two years. It's no surprise, then, that Obama opposes extending most of those cuts beyond 2012. His budget doesn't include making the 2001 and 2003 tax cuts for families earning more than $250,000 a year permanent; that means those high-income families would see a tax-rate increase in 2013.

Tied closely to the boost in rates is the return of the PEP (personal exemption phase-out) and "Pease" limitations. Under PEP, personal exemptions for high-income taxpayers were reduced as adjusted gross income (AGI) increased, while the Pease provision reduced itemized deductions at the top of the brackets. Obama's proposal would limit the amount that high-income taxpayers could claim for charitable contributions, mortgage interest, state and local tax payments and other itemized deductions.

Also on the chopping block: tax savings under the current federal and gift tax structure. In December 2010, Congress pushed through an increase in the personal exemption amounts for federal estate tax purposes that allows families to pass $3.5 million per person -- or $7 million per married couples -- without paying federal estate tax. The tax deal also decreased the corresponding tax rate to near historic lows, at a flat 35%. President Obama would eliminate those tax breaks on federally taxable estates by lowering the exemption amounts and increasing the tax rates.

Finally, Obama's budget would tackle certain corporate tax breaks. Among them is the elimination of tax cuts granted to oil, gas and coal companies. That would save individual taxpayers an estimated $46 billion over 10 years.

But don't start planning for tax increases (or spending cuts) yet. Both parties have voiced their dissatisfaction with the proposed budget. Democrats are angry over deep cuts in spending to social programs while Republicans claim the cuts aren't tough enough. Expect both parties to dig in their heels over the coming weeks as they try to strike a balance between reining in spending and holding the lid on taxes.

Increase your money and finance knowledge from home

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

TurboTax Articles

Video: How to Claim the Affordable Care Act Premium Tax Credit (Obamacare)

The Affordable Care Act Premium Tax Credit is a new refundable tax credit that can lower your monthly health insurance premiums. If you qualify for the tax credit, you can claim the Premium Tax Credit throughout the year to lower your monthly health insurance premiums, or claim the credit with your tax return to either lower your overall tax bill or increase your tax refund.

Cities With the Highest and Lowest Taxes

Geography has a lot to do with personal finance, and where you live in the United States has an impact on your annual tax burden. While federal income taxes are assessed in a consistent manner coast to coast, state and municipal taxes, such as sales and property taxes, vary widely.

When the IRS Classifies Your Business as a Hobby

If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

Hurricane Sandy Tax Relief

Several tax provisions were put in effect to help taxpayers who live or do business in areas affected by Hurricane Sandy - but a number of those provisions expired on Feb. 1, 2013.

Add a Comment

*0 / 3000 Character Maximum