Here's Everything You Need To Know About Obama's Economic Plan

Barack Obama

Photo: Getty Images

Over the course of the 2012 campaign, President Barack Obama has faced a lot of criticism for not laying out a formal plan that would define his second term.You wouldn’t know it from watching his re-election campaign, but the president and his administration have actually given a lot of information about what his plans are for the economy, should he win a second term.

Most of the plan is laid out in the White House’s public blueprint for the plan, but the specifics are a little harder to track down — especially from the campaign’s site.

We’ve gone through the blueprint, and other related White House blog posts, and laid out the ideas that Obama has to keep the recovery going. 

Implement the 'Buffett Rule'

The cornerstone of Obama's plan for deficit reduction is make people who make over $1 million per year pay a federal income tax rate of at least 30% -- the so-called 'Buffet Rule,' named after billionaire investor Warren Buffett, who supports the proposal.

At the moment, the highest income tax bracket is taxed at 35%. Through comprehensive accounting and taking advantage of existing tax law, many millionaires can bring their realised tax rate down into the 10-25% range.

The Obama administration has argued that this ruins the whole intention of the tax bracket system and needs to be fixed.

The Buffett Rule would mitigate the impact of a number of these tax write-offs that enable the rich to lower their realised rate of taxation, by stating that while the maximum tax rate is 35%, the wealthiest Americans should pay a minimum rate of 30%.

Source: The White House Buffet Rule

Lower tax rates for middle-income families and corporations

The first point of the President's tax plan is to lower individual and corporate tax rates. With regards to the individual rate, the President wants to make the 2001 and 2003 Bush tax cuts permanent for middle income families.

The president also claims that he wants to bring the corporate income tax rate down from 35%, but he doesn't specify how much he would like to cut.

Source: The White House

Simplify the tax system and consolidate tax brackets

Obama's tax plan also says he would reduce the number of tax brackets down from six, a surprising alignment with the consolidation favoured by Republicans. But unlike House Republicans, who have said they favour a two-bracket system, Obama does not specify how many tax brackets he would put in place.

The White House blueprint also pledges to 'simplify the tax system' but does not provide details on how the president plans to accomplish this goal.

Source: The White House

Obama wants to cut tax 'loopholes,' which the White House defines as those 'tax breaks that are inefficient, unfair, or both' and are used to game the system.

Some specific targets:

  • Tax preferences for high-income households
  • Special tax breaks for oil and gas companies
  • Loopholes for investment fund managers
  • Benefits for corporate jet owner

Source: The White House

Allow two tax cuts to expire in order to cut the deficit

Under Obama's economic blueprint, two tax breaks would expire:

  • The tax cut for single, unmarried taxpayers earning over $200,000 per year
  • The tax cut for married couples making more than $250,000 per year.

According to the White House economic team, the revenue would be used to cut the deficit by $1.5 trillion over the next decade.

Source: The White House

Implement tax credits for companies that bring jobs back to the US

Obama wants a new tax credit that would allow a company to write off 20% of the expenses of moving a plant back to the U.S.

According to the White House, the credits would be paid for by removing loopholes that allow companies to deduct the moving expenses of shipping a facility overseas.

As it stands, a company that spends $1 million moving a facility overseas can write off $350,000 if they pay the corporate tax rate of 35%.

Source: White House Press Office, Matt Compton

Expand the domestic production tax incentive for manufacturing

As it stands, there is a 9% tax deduction for companies that manufacture and produce domestically.

The Obama administration has proposed increasing and in some cases doubling this deduction, but promises not to expand the tax credit so far that it hurts the ability to balance a budget,

The proposed amended deduction narrowly focuses on manufacturing, excluding businesses like oil production and distillation and specifically targeting companies that make goods.

This means that the new version of the domestic production incentive would:

  • No longer apply the credit companies that produce oil
  • With those savings, expand the current deduction for manufacturing companies, including an 18% credit for firms involved in advanced manufacturing

Source: The White House

Instate $15 billion in domestic manufacturing tax credits

The administration has proposed a series of ambitious tax credits:

  • Manufacturing Communities Tax Credit -- a $6 billion credit to helps finance investments in communities heavily hit by job losses (a qualified community would be one where plant or base closure occurred resulting in permanent mass layoffs). This credit would be worth $2 billion each year for 3 years.
  • Advanced Energy Manufacturing Tax Credit -- A $5 billion credit that the administration claims would leverage $20 billion in total investment in domestic clean energy manufacturing.
  • A $4 billion tax credit that would allow domestic businesses to expense the full cost of new plants and equipment. The hope here is that the lost revenue would result in more domestic economic investment.

Source: The White House

Close a loophole that allows companies to shift profits overseas

The Obama administration would pay for those domestic manufacturing tax credits by closing a loophole that allows companies to shelter revenue overseas to remain exempt from taxation.

He wants to institute a minimum tax for profits and jobs overseas. The goal is to raise money to compel companies to come back to the U.S., both physically and financially.

Source: The White House

At the beginning of 2012, the Commerce Department had 285 trade enforcement actions in place covering 120 products from 38 countries that 'refused to play by the rules.'

Going forward, Obama has laid out plans to create a Trade Enforcement Unit to investigate illegal international trading practices.

Source: The White House

Invest in American infrastructure

In his plan, Obama argues that the country's ageing infrastructure has made it harder for American companies to compete internationally, and proposes investing in upgrading roads and bridges, as well as in revamping the electrical grid and improving access to high-speed broadband.

To pay for these improvements, the White House proposes using half of the money saved by ending the wars in Iraq and Afghanistan. The other half of those savings would go toward paying down the national debt.

Source: The White House

Implementing a big tax cut for clean-energy manufacturing companies

The administration wants to continue tax incentives for clean energy manufacturing, as well as the Production Tax Credit to support the actual implementation of clean-energy technology, a 30% tax cut to investments in green energy technology.

Obama also plans to open up tracts of federal land for additional green energy use, and to invest more in advanced vehicle batteries and biofuel research and development.

Source: The White House

Reform college and higher education

Although its connection to economic growth is tenuous, the administration's economic blueprint includes investments to make college and vocational training available for more people, including:

  • The First in the World competition invests $55 million in specific colleges and nonprofits that establish new programs that boost campus productivity.
  • A $1 billion proposed investment to state governments to revise the state financing for higher education and to ensure that the funding remains consistent and adequate.

Source: The White House

Cut red tape in mortgage market so homeowners can refinance easily

The White House has also rallied behind a proposed bill that would enable homeowners who have been paying mortgages on time to refinance and lower their rates.

This would expand the Home Affordable Refinance Plan (HARP) to allow homeowners who have been making payments but are still underwater on their homes to refinance, allowing 8 million new homeowners to benefit from a better rate.

Source: The White House

Create new tax credits for small businesses that hire employees and give raises

Obama wants to pass a 'New Hire' tax credit for small businesses, which would provides a 10% income tax credit for firms that create new jobs or increase wages.

He also wants to continue a tax credit that allows businesses to write-off 100% of their purchases.

Source: The White House

Streamline regulation for small clean energy and biotech firms

Under Obama, the Small Business Administration has made a number of recommendations to the White House on how to make it easier for small firms in those industries to succeed.

The Department of Energy is working on strategies to double the number of startup agreements from Department of Energy laboratories to 42 startups per year.

And the National Institutes of Health is working to assist young biotech startups with funding and resources to develop early stage drugs, vaccines and therapeutics.

Source: Department of Energy, NIH

Consolidate departments and agencies that focus on trade

The president is asking congress for the authority to consolidate six different governmental entities into a single department.

Here are the agencies and departments that would be rolled into a single department:

  • U.S. Department of Commerce's core business and trade functions
  • The Small Business Administration
  • Office of the U.S. Trade Representative
  • Export-Import Bank
  • Overseas Private Investment Corporation
  • U.S. Trade and Development Agency

Source: White House Blog

Repeal Jackson-Vanik and grant Russia Permanent Normal Trade Relations Status

The White House wants to permanently normalize trade relations with Russia, now one of the largest economies in the world.

Permanent Normal Trade Relation is a status conferred on another nation that allows for free trade. It's automatically conferred on a nation unless a law specifically denies that.

Because of the Jackson-Vanik amendment, Russia only enjoys Normal Trade Relations status. The 1974 amendment banned the Soviet Union from enjoying Normal Trade Relation status without specific presidential order and it continues to be in effect for former Soviet bloc countries.

Source: White House Policy Paper

Back private investors and make public offerings easier

Under Obama, the Small Business Administration launched Startup America, which makes investments to match private capital in funds raised by early-stage startups with high growth potential.

He also wants to raise the Regulation A SEC initial public offering exemption from $5 million to $50 million, allowing small companies to go public without diving into a regulatory mess.

Source: White House Blog

Now check out Mitt Romney's comprehensive economic plan

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