Treasury provides roadmap for shift in tax burden.

• Author: Stromsem, William R.

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ON MAY 11, TREASURY RELEASED GENERAL Explanations of the Administration's Fiscal Year 2010 Revenue Proposals. This is an important blueprint for how the president proposes to shift the burden of taxes in order to keep from raising taxes on most Americans while paying for important election-year promises. President Obama has said that he will not raise taxes on individuals and businesses earning less than $250,000, excluding approximately 98% of potential taxpayers. On the spending side, the president has acknowledged that the economic slowdown may also slow the timetable for accomplishing election-year promises, but the administration is still committed to funding the economic recovery and to some expensive initiatives such as health care and education. Also, hoped-for cuts in military spending in Iraq are being offset by increases in the Afghanistan-Pakistan area.

The administration's proposals will be discussed throughout this year in Washington and will change before enactment. However, with a Democratic Congress and president, the proposals cannot be ignored, even at this early stage, and some proposals may come quickly to pay for an anticipated $700 billion health care bill this summer. (President Obama has stated that he is committed to a "pay as you go" approach to spending legislation.)

Here is a quick summary of some of the president's tax proposals.

Tax Provisions Generally

The Obama proposals increase taxes on many higher-income individuals, reversing some of the Bush-era tax cuts that were included in the Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16, including reinstatement of the 39.6% rate. For joint filers with income over $250,000 and singles with income over $200,000, the 36% rate is reinstated. For these taxpayers, the limits on itemized deductions and the personal exemption phaseout would be reinstated, and a 20% tax rate on dividends and capital gains would apply. In addition, the Obama proposals would limit the value of itemized deductions to 28% when they would otherwise reduce taxable income in the 36% and 39.6% brackets, with similar limits applying under the alternative minimum tax.

The proposals also include a number of tax decreases. For businesses, they would eliminate capital gains tax on small business stock, make the research and experimentation tax credit permanent, and expand the net operating loss (NOL) carryback. The American Recovery and Reinvestment Act...