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Budget Proposal Calls For Billions In New Government Spending

DAVID GREENE, HOST:

And let's take a closer look at this budget and the president's argument that it will help America's middle class. David Wessel is director of the Hutchins Center at the Brookings Institution and contributing correspondent to The Wall Street Journal. He joins us often the program, as many of you know, and he's on the line. David, good morning.

DAVID WESSEL: Good morning.

GREENE: So would President Obama's tax plan that's in this budget help the middle class?

WESSEL: To a large extent, yes. Although the answer turns on exactly what you mean by middle class, which is a kind of a vague term these days.

GREENE: Yeah.

WESSEL: But if you look at the president's tax cuts, they primarily benefit low-income, single, workers and working-age households with children, both low- and middle-income households. There's a new $500 two-earner couple tax break, for instance. That's aimed at middle-class couples. There's an expansion of the tax credit for child care that would go well into the middle class. The tax increases he proposes primarily hit those with incomes 200,000 and above or people with a lot of assets. But one thing that's missing in the debate, I think, is that even if Congress accepted all his tax proposals - which it won't - the Treasury says they would touch only about 30 percent of taxpayers. Most taxpayers would see neither a tax increase nor a tax cut.

GREENE: Well, help me make sense of something. There's been this report mentioned from the Tax Policy Center, which I know is affiliated with the Brookings Institution, and they suggested the budget not only doesn't go that far in helping the middle class, it could actually hurt some in the middle class. And the White House budget director was on our program yesterday, Shaun Donovan; he said that study is simply flawed. I mean, can you make sense of this?

WESSEL: This turns on how you think about one element of the budget, albeit a very big one. Under current law, if your grandfather dies and leaves you some stock that's worth much more than he paid for it decades ago, no one pays taxes on that capital gain. It's called the angel of death provision. I love that. The president would change the law to tax those capital gains. And there's an arcane difference of methodology where the Tax Policy Center measures this in a way that would show the tax would hit more of the middle class than the way the Treasury measures it. And on top of that, the Treasury has access to IRS data that the Tax Policy Center doesn't, so they say their numbers are more accurate. But I think it's important that if you look at all the other elements in the Obama tax plan, the two sets of economists agree. The tax hikes fall largely on those over 200 grand, and tax cuts would go to those with income below that.

GREENE: And many people, as you said, won't see a real change much at all.

WESSEL: Exactly.

GREENE: Well, tell me about another element of this budget proposal. The president's suggesting a new way to tax multinational corporations on their foreign profits, what's that all about?

WESSEL: I think that's important. This is the president's opening bid on something that's on the short list of - very short list - of items that the president and congressional Republicans might actually do something about. Today, many U.S. multinationals earn a lot of money overseas. They avoid U.S. taxes by never bringing the money home, and sometimes they don't even pay taxes on it abroad. The president would get rid of credits and loopholes to cut the overall corporate tax rate, set a new global minimum tax on future overseas profits to shut down tax havens and levy a new tax - 14 percent - on old profits overseas. That, he says, would bring in over $250 billion over the next five years that he'd use to finance road-building and other infrastructure.

GREENE: Road-building infrastructure - isn't that usually, or often, financed by a gas tax? Was that something the administration considered?

WESSEL: Well, given the president's rhetoric about the need to respond to climate change, I'm sure some people in the administration would support a higher gasoline tax or a carbon tax. But I think the White House really wanted to avoid proposing anything that could be described by anybody as a tax on the middle class. So if they talked about it, they'd never put it in the budget.

GREENE: All right. David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, also a contributor to The Wall Street Journal and a frequent guest on our program. David, thanks as always.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.

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