President Barack Obama is releasing his budget for fiscal year 2015 Tuesday and there’s one part Wall Street won’t like. The White House sent out a preview of the budget Monday that reveals Obama is still trying to kill the “Carried Interest” tax loophole, which allows hedge fund and private equity profits to be taxed at a lower rate. According to the White House preview, this and other changes in the budget are designed to help the middle class.
“The President’s budget will show in real terms the choices we can make to expand economic opportunity and strengthen the middle class, like closing unfair tax loopholes so we can invest in the things we need to help the middle class and those striving to get into it, grow our economy, and provide economic opportunity for every American,” the preview said. “It invests in infrastructure, job training, and preschool; cuts taxes for working Americans while closing tax loopholes enjoyed by the wealthy and well-connected; and reduces the deficit.”
Obama has unsuccessfully tried to end the carried interest loophole in prior budgets.
This is the second recent proposal to kill the carried interest loophole. Last week, Rep. Dave Camp, the Republican chairman of the House Ways and Means Committee, released a tax reform plan that included ending the loophole. Additionally, Camp’s plan included a proposal to raise taxes on firms holding over $US500 billion in assets. Camp’s plan sparked reports of a possible Wall Street revolt against the Republican Party. An industry insider later told Business Insider those rumours were exagerrated, but only because financial firms knew Camp’s proposal had little chance of reaching a vote on the House floor.
Obama’s budget contains several other notable changes in addition to the plan to end the carried interest loophole. The president would also expand the Earned Income Tax Credit and Child Tax Credit. Obama’s plan to grow the EITC focuses on childless workers. Currently, the EITC largely benefits people who are married and have children. The White House said these changes would be funded by “closing tax loopholes that let high-income professionals avoid the income and payroll taxes everyone else has to pay.”
The budget also proposes expanding the Child and Dependent Care Tax Credit. According to the White House, this would give “about 1.7 million families” an “average tax cut of more than $US600.”
Obama is also proposing the establishment of automatic IRAs to encourage workers to save for their retirement. The White House said this program would cause “about 13 million workers” to begin contributing to auto-IRAs.
Lastly, Obama is proposing several plans aimed at students paying for college. The White House said his budget would permanently extend the American Opportunity Tax Credit, “simplify” taxes for the recipients of Pell Grants, and would exclude “student loan forgiveness from taxation for borrowers who have made student loan payments for many years under an income-related repayment plan.”
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