The Budget 2015 proposals would reduce the United States medium-term fiscal deficit by increasing revenues, particularly on the wealthiest taxpayers, but are unlikely to reach Congress. The US deficit would fall from 3.7 percent of gross domestic product (GDP) in 2014 to 2.3 percent by 2019, before staying at about 2 percent for the rest of the ten-year budget forecast. Both spending and revenues would rise, but taxes would grow at a faster pace. Amongst the most notable proposed tax measures would be an expansion of the earned income tax credit (EITC) together with an expansion of the child and dependent care tax credit.
The maximum EITC would be doubled to about USD1,000 and the income level at which the credit is fully phased out would be increased to about USD18,000 (roughly 150 percent of the federal poverty line for a single adult). The proposal would make the credit available to young adult workers age 21 and older, and it is estimated that 7.7m workers would be eligible for a larger EITC, while 5.8m workers would be newly eligible for the credit.
These tax credit expansions would be effectively balanced by closing the so-called “tax loopholes” for high-income professionals. Taxes on “carried interest” profits would be raised to ordinary income tax rates, instead of the lower 20 percent capital gains rates, and the provision that allows individuals setting up S-corporations to receive profits rather than income and avoid payroll taxes, would be reversed by legislation. Other tax measures in the Budget would restrict the value of itemized deductions and exclusions to the 28 percent individual income tax bracket, and would implement the “Buffett rule” of a minimum 30 percent tax for those with incomes above USD1m.
Revenues would also be found, for example, by increasing the estate tax that is seen to have a great effect on owners of pass-through businesses. The top estate tax rate would be 45 percent (instead of the current 40 percent) and the lifetime exclusion amount would be USD3.5m for estate tax and USD1m for gift taxes (instead of the present USD5m for both taxes). There would be no indexing for inflation.