BUDGET

50 MEETING OUR GREATEST CHALLENGES: OPPORTUNITY FOR ALL
TAX REFORM THAT PROMOTES GROWTH AND OPPORTUNITY
A simpler, fairer, and more efficient tax system
is critical to achieving many of the President’s
fiscal and economic goals. At a time when middle
class and working parents remain anxious
about how they will meet their families’ needs,
the tax system does not do enough to reward
hard work, support working families, or create
opportunity. After decades of rising income and
wealth inequality, the tax system continues to favor
unearned over earned income, and a porous
capital gains tax system lets the wealthy shelter
hundreds of billions of dollars from taxes each
year. In a period where an aging population will
put increasing pressure on the Federal budget,
a wide range of inefficient tax breaks prevent
the tax system from raising the level of revenue
the Nation needs. While commerce around the
world is increasingly interconnected, an out-ofdate,
loophole-ridden business tax system puts
U.S. companies at a disadvantage relative to
their competitors, while also failing to encourage
investment in the United States.
The Budget addresses each of these challenges.
As described above, it reforms and simplifies
tax incentives that help families afford child
care, pay for college, and save for retirement.
The Budget expands tax benefits, like the EITC
for workers without qualifying children, and creates
new benefits, like a second earner tax credit,
that support and reward work. It also makes
important investments in the IRS that will improve
taxpayer services, allow the IRS to fairly
enforce the tax code, and takes steps to counter
cybersecurity threats and protect taxpayers from
identity theft.
Closing Tax Loopholes for the
Wealthy, Imposing a Fee on Large
Financial Firms, and Making Sure
Everyone Pays Their Fair Share
The Budget pays for tax reforms that support
work, help middle-class families get ahead, and
reduce the deficit through numerous changes to
make the tax code fairer, simpler, and more efficient,
including by closing loopholes that let the
wealthy pay less than their fair share and imposing
a fee on large financial firms. Specifically,
the Budget would:
• Reform the Taxation of Capital Income.
The Budget would reform the taxation of
capital income in two important ways: first,
by increasing the top tax rate on capital
gains and dividends to 28 percent (inclusive
of the 3.8 percent Net Investment Income
Tax (NIIT), the rate at which capital gains
were taxed under President Reagan; and
second, by ending “stepped-up basis,” which
allows hundreds of billions of dollars in
capital gains to avoid income tax, while
preventing undue burdens on middle-class
families and small businesses through various
exclusions.
• Impose a Financial Fee. The Budget
would also impose a new fee on large,
highly-leveraged financial institutions.
Specifically, the Budget would raise $111
billion over 10 years by imposing a seven
basis point fee on the liabilities of large U.S.
financial firms—the roughly 100 firms with
assets over $50 billion. By attaching a direct
cost to leverage for large firms, this fee
will reduce the incentive for large financial
institutions to use excess leverage, complementing
other Administration policies
aimed at preventing future financial crises
and making the economy more resilient.
• Limit the Value of Itemized Deductions
and Other Tax Preferences to 28
Percent. Currently, a millionaire who deducts
a dollar of mortgage interest enjoys
a tax benefit that is more than twice as
generous as that received by a middle-class
family. The Budget would limit the value
of most tax deductions and exclusions to 28
cents on the dollar, a limitation that would
affect only couples with incomes over about
$250,000 (singles with incomes over about
$200,000).
• Close Tax Loopholes. The Budget would
also close a number of inefficient, unintended,
and unfair tax loopholes in the individual
tax code. For example, it would end the “car-