President Barack Obama will use his State of the Union speech Tuesday to propose hundreds of billions of dollars in tax increases on the wealthy, and to urge that the money be used to finance tax cuts for the poor and middle class, free college, and other benefits.
While likely dead on arrival in Congress, Obama’s plan could serve as a platform for Democrats in 2016 elections and a way to answer complaints about working people who have fallen farther behind on his watch even as the overall economy has grown.
Already, the 2016 presidential campaign is shaping up as a debate in part on the struggles of the poor and middle class. Potential Republican candidates such as Jeb Bush and Mitt Romney signaled in past days they will hammer on the Democrats’ record.
“Under President Obama, the rich have gotten richer, income inequality has gotten worse and there are more people in poverty than ever before,” Romney said Friday as he outlined a possible campaign to top Republicans in California. “Under this president, his policies have not worked. Their liberal policies are good every four years for a campaign, but they don’t get the job done.”
“Millions of our fellow citizens across the broad middle class feel as if the American Dream is now out of their reach,” says Bush’s new political action committee. “While the last eight years have been pretty good ones for top earners, they’ve been a lost decade for the rest of America.”
Unwilling to cede the turf, Obama will use the sweeping tax proposal as a way of showing how he – and presumably the Democrats — would help struggling Americans.
“We’ve rescued and begun to rebuild our economy on a new foundation,” said a White House official who spoke on condition of anonymity to preview the president’s argument. “Now we have to build on this progress, to raise wages and incomes, and strengthen the standing of working families in a new economy.”
His proposed tax increases would total $320 billion over 10 years, and come atop those levied on the wealthy last year, which will total about $600 billion over the next decade.
While last year’s tax increases were part of a fiscal showdown after the 2012 elections, it was much easier for Obama to get those increases as Bush-era tax cuts expired and he refused to agree to extend them for the wealthy. Now he’d have to get Congress to approve new taxes, all but impossible in a Congress controlled by Republicans who ran last year on cutting spending, not increasing revenues.
The White House estimates the tax increases would raise about $210 billion from the higher taxes on the estates and investment income of the wealthy, and $110 billion from fees on finance and Wall Street.
He will propose closing what the White House called the “Trust Fund Loophole,” which aides said allows wealthy individuals to pass $100 billion worth of assets tax-free to heirs.
“The president’s proposal is not about piling on additional taxes,” the senior administration official insisted. “It’s about making sure that every American, even the wealthiest ones, actually pay taxes on these gains, just like middle class Americans do.”
The estate tax has long been a point of ideological battle as conservatives argue that people already paid taxes as they made the money, and liberals arguing that heirs should have to pay as they inherit the money.
The White House said closing the increase would affect just the wealthiest and would be designed so that small businesses or middle class tax payers would not be affected.
For couples, no tax would be due until the death of the second spouse and capital gains of up to $200,000 per couple could be bequeathed without being taxed. In addition, there would be a $500,000 exemption on homes and most heirlooms would be tax exempt.
As of now, estates with combined gross assets and prior taxable gifts exceeding $5,340,000 were subject to the tax in 2014, and those exceeding $5,430,000 will be subject to the tax in 2015.
Obama also will propose raising the top capital gains and dividend rate from 20 percent to 28 percent for high-income households – couples with incomes more than $500,000.
And he will call for a financial fee that the administration said would make it more costly for large financial firms to finance activities by borrowing heavily. His proposal would impose a fee on the debt that large U.S. financial firms incur. Before the financial crisis of 2008, Wall Street banks borrowed heavily to make risky bets that nearly sank the U.S. financial system.
The proposal would impact about 100 companies with more than $50 billion in assets, the White House said.
The White House said the plan is “broadly consistent” with a plan championed by former Ways and Means Committee chairman Rep. Dave Camp, R-Mich. Critics said Camp’s proposal for an excise tax on financial institutions could hike taxes on homeowners and home buyers.
Obama will urge using the revenues to pay for a number of proposals, including a $60 billion plan to make two years of community college free for every student.
He will also propose a $500 tax credit to help families in which both spouses work; expanded child care tax incentives to give families with young children a tax cut of up to $3,000 per child; and expanded education tax benefits to provide more students with up to $2,500 a year for five years.
His plan will propose giving more workers access to a retirement account by requiring every employer with more than 10 employees to automatically enroll their workers in an Individual Retirement Act, if they do not currently offer a plan. He also proposes expanding access to retirement plans for part-time workers.
White House officials said they believe there is bipartisan support for the measures, noting that a version of the education tax credit cleared the House and that similar retirement accounts have been championed by the Heritage Foundation.
McClatchy correspondent Kevin G. Hall contributed to this report.
An earlier story gave the wrong threshold at which estates are subject to the estate tax. Those worth more than $5,340,000 were subject to the tax in in 2014 and those worth more than $5,430,000 are subject to the tax in 2015.