The tax policies in President Obama’s budget request for fiscal year 2013 more closely resemble those proposed for the Joint Select Committee on Deficit Reduction (i.e., the Super Committee) last September than those included in last year’s budget request. Consequently, this year’s budget raises more revenue (ostensibly to finance job creation) and does more to restore tax progressivity than previous budgets. Like the administration’s Super Committee proposals, the president’s 2013 budget proposes comprehensive tax reform, which would aim to raise $1.5 trillion over a decade, relative to current policies, from businesses and households making over $200,000 ($250,000 for joint filers).

In his recommendations to the Super Committee, President Obama proposed that tax reform should be guided by the Buffett Rule – that “no household making over $1 million annually should pay a lower share of its income in taxes than middle-class families pay.” The 2013 budget adopts a more clearly defined Buffett Rule from the president’s State of the Union address, which stated: “If you make more than $1 million a year, you should not pay less than 30 percent in taxes.” In a progressive tax code, effective tax rates are intended to rise with income, but tax code loopholes—overwhelmingly the preferential treatment of capital income over labor income—allow some millionaires and billionaires to pay lower tax rates than middle-class households. While short on details, the president’s 2013 budget suggests that the Buffett Rule would be implemented as a new minimum tax for millionaires, replacing the existing alternative minimum tax (which falls predominantly on upper-middle-class households). The budget also suggests that the Buffett Rule would give some deference to millionaires’ charitable contributions, but would nonetheless likely ensure that tax rates rise with ability to pay.

A recent Congressional Research Service report noted: “Tax reforms that are consistent with the Buffett rule would likely include raising tax rates on capital gains and dividends.” The president’s 2013 budget moves further in this direction than his previous budget requests. The 2013 budget again proposed ending the carried interest loophole and restoring the top rate on capital gains to 20 percent, but this budget also proposes taxing upper-income households’ qualified dividends as ordinary income (instead of a preferential 20 percent rate, as previously proposed). Again equalizing the tax treatment of income derived from work and that derived from investments should be at the core of progressive tax reform. This focus reflects income and inequality trends and raises revenue from those households best able to contribute to deficit reduction (the same households that disproportionately benefit from the last decade’s regressive, deficit-financed tax cuts).

To steer Congress toward tax reform, the president’s budget identifies revenue increases of $1.9 trillion, almost $1.6 trillion of which would come from sunsetting the upper-income George W. Bush-era tax cuts, capping the rate at which tax preferences reduce tax liability for upper-income households, and reinstating the estate tax at 2009 parameters, again all relative to current policy. The remaining tax proposals include closing business tax loopholes, ending fossil fuel preferences, and reforming the international tax code, which look quite familiar. (See For Joint Select Committee, many good options: Progressive revenue proposals would narrow budget gap by trillions for an analysis of the president’s tax proposals for the Super Committee.) Relative to current policies, the tax proposals in the 2013 budget would increase revenue as a share of GDP by 1.5 percentage points over the next decade – nowhere close to restoring revenue adequacy, but nonetheless an improvement over last year’s proposed 1.3 percentage point revenue increase.

Critically, the president’s tax proposals for 2013 appear to raise more revenue than those in his previous budget requests in order to finance a slew of job creation proposals closely resembling the American Jobs Act (which the president proposed financing with many of the progressive tax reforms in this budget, including caps on a wider range of tax preferences for upper-income households). The emphasis on near-term fiscal support gradually financed by tax increases on upper-income households—which will have a relatively small adverse impact on economic activity, unlike spending cuts—is good economic and fiscal policy. Federal tax and budget policy should accommodate bigger deficits today and reduce deficits as the output gap shrinks. The president’s tax policy proposals move in the right direction on this front, but they would also help to restore fairness to the tax code and begin to temper Gilded Age-levels of income inequality.