The most controversial part of the proposal (at least in our view) was buried on page 73 of the Green Book, which is the Treasury’s “General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals”. We were wondering why the Administration estimated the benefit of the above proposal at $584 bn, when the CBO estimated it at $293 bn just last year.
The answer: this proposal includes a new category of taxable income, which would include your municipal bond income, your contributions to 401k plans and other similar vehicles, and your entire health insurance premium (regardless of who pays it). The approach appears to apply a tax rate to these items equal to the difference between your top statutory tax rate and 28%. For example, a taxpayer subject to a top statutory rate of 35% would pay a 7% tax on this income.