ECONOMIC REPORT OF THE PRESIDENT

ate on capital gains and dividends to 28 percent and by closing a loophole
that allows wealthy families to avoid ever paying tax on their capital gains if
they hold assets until death. The budget would also reform tax expenditures
to limit their value for high-income families and would close loopholes that
allow some wealthy business owners to avoid paying Medicare taxes by
classifying certain income as neither employment nor investment income.
It would also increase the tax paid by the very largest estates. All told, the
tax reforms in the budget would reduce the share of income received by the
top 1 percent of families by 1.3 percentage points, rolling back an additional
13 percent of the increase in the after-tax income share of the top 1 percent
between 1979 and 2007.
Conclusion
During his eight years in office, President Obama has overseen the
largest increase in Federal investment to reduce inequality since the Great
Society. The policy response to the Great Recession reduced the unemployment
rate relative to what it otherwise would have been by 6 percentage
points on average each year between 2010 and 2012 and offset roughly half
of the increase in earnings inequality that would otherwise have occurred.
The Affordable Care Act and changes in tax policy will boost incomes in the
bottom quintile of families by 18 percent in 2017 and increase average tax
rates for the highest-income 0.1 percent of families by nearly 7 percentage
points. Together, these policies will increase the share of after-tax income
received by the bottom 99 percent by 1.2 percentage points in 2017 with a
corresponding reduction in the income share of the top 1 percent.
Despite this progress, income inequality remains much higher today
than it was a few decades ago, and the President’s Fiscal Year 2017 Budget
proposes spending and tax reforms that would further reduce inequality.
These steps include, among others, reforms to tax benefits for high-income
Americans; an expansion of the Earned Income Tax Credit for workers
without dependent children; and a landmark commitment to ensuring all
low- and moderate-income families have access to quality, affordable child
care that allows parents to work or pursue education and training. Taken
together, the policies proposed in the budget would build on the progress
made in reducing income inequality since 2009, helping to ensure that all
Americans have the opportunity to succeed.
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