President Barack Obama will use his State of the Union address Tuesday night to stake out a populist vision of tax reform and new middle-class benefits — and practically dare Republicans to say no.
The message: Wage stagnation? Obama’s on it. And if Republicans say no — especially to catchy-sounding ideas like getting rid of the “trust fund loophole” — they can explain it to voters in 2016.
The White House announced a package of initiatives Saturday to create new and expanded tax credits for the middle class, including a new tax break for two-earner families and a tripling of the child tax credit, and pay for it through a big increase in capital gains taxes and a hefty fee to discourage risky borrowing by big banks.
Altogether, the new tax benefits for middle-class families would cost $175 billion over 10 years, according to senior administration officials — in addition to the $60 billion price tag for the proposal Obama has already announced to make community college tuition free for two years.
But not to worry, administration officials say — steeper capital gains taxes and new financial fees would more than pay for it. They’d raise $320 billion over 10 years, according to White House estimates — $210 billion from the new capital gains tax revenues and $110 billion from the bank fees. All of the proposals will be spelled out in more detail in the budget proposal Obama will submit to Congress on Feb. 2.
It’s a way for Obama to position himself as a defender of the middle class and a fighter against stagnant wages, as an opening bid in any negotiations with Republicans on revamping the Tax Code — one of the few areas where GOP leaders say there could be the potential for a deal with Obama during his final two years in office.
Despite all of the signs that the economy is doing better, “the middle class has yet to experience the prosperity shown in the recovery,” a senior administration official said in a conference call with reporters Saturday. Obama’s speech, the official said, will be about “the choices he thinks we need to make to make sure that that extends to the middle class.”
White House officials aren’t holding their breath that Obama’s new proposals will pass Congress now that Republicans control both chambers. The reality is that even though both sides claim they’re interested in finding common ground on tax reform, they had big differences already. Both sides want to lower corporate tax rates, but many GOP lawmakers insist that individual tax rates need to be reduced as well, and Obama and most Democrats say that would just be a boon for the wealthy.
There are clearly pragmatic things that we could do that have bipartisan support, and so let’s try to get them done."
— Senior administration official
New spending initiatives and expensive tax credits aren’t likely to be a big draw for Republicans, either — that’s not what they see as the goal of tax reform. But Obama administration officials insist that several of the ideas have drawn bipartisan support in the past, including the bank fees, which are similar to a proposal former House Ways and Means Committee Chairman Dave Camp included in his tax reform proposal last year. Republican leaders, however, showed no enthusiasm for the idea.
The bottom line, though, is that Obama is betting it will be politically awkward for Republicans to explain why they would resist goodies like a $3,000 per child tax credit — three times the maximum amount that’s available now — especially when prominent Republicans like Sen. Marco Rubio, a potential presidential candidate, have
pitched their own ideas for boosting the child tax credit.
“The president’s going to take this opportunity to make the case directly to the American people why we can, and in fact need to, move forward on an agenda like this,” said another senior administration official. “We are hopeful that what we will see is a positive response, particularly from those who have championed similar ideas in the past.”
Obama’s message to Congress, the official said, will be: “If we all focus on middle-class opportunity and try to help middle-class families, there are clearly pragmatic things that we could do that have bipartisan support, and so let’s try to get them done.”
The main middle-class benefits in Obama’s plan are the beefed-up child tax credit, which, it predicts, would help 5 million families cover their child care costs, and a new tax credit of up to $500 for households in which both spouses work. The White House estimates the second earner credit would benefit 24 million couples; the maximum credit would be available to families with incomes up to $120,000.
He’s also reviving a proposal to expand the Earned Income Tax Credit to childless workers, an idea the White House predicts would help 13.2 million low-income people.
These all contain elements of proposals Republicans have backed in the past, but Republicans are likely to draw contrasts. Rubio endorsed an additional $2,500 tax credit as part of a
tax reform planwith Sen. Mike Lee of Utah, but only as part of a broader streamlining of the Tax Code that goes well beyond what Democrats would support. And House Ways and Means Committee Chairman Paul Ryan wants to expand the Earned Income Tax Credit, but he’d pay for it differently and would include anti-fraud measures.
Obama also wants to help more Americans pay for college expenses by making the American Opportunity Tax Credit permanent, rather than letting it expire in 2017. And to help with their retirement expenses, he’d require all businesses with more than 10 workers to enroll their workers automatically in an individual retirement account if they don’t offer a retirement plan already. He’d give small businesses a $3,000 tax credit to help offset the costs.
The biggest source of money for Obama’s new initiatives, administration officials say, would be the capital gains tax changes — taxing more investment income and raising the top capital gains and dividends tax rate to 28 percent from 20 percent. Their sales pitch to Republicans: That’s the rate taxpayers had to pay when Ronald Reagan was president.
The focus on capital gains and dividends and the effective rate paid by the wealthy revives a debate that dominated the 2012 election — when Democrats hammered Mitt Romney’s relatively low tax rate — which he enjoyed largely because the former private equity executive made most of his wealth from investments.
The targeting of the “trust fund loophole” is full of arguments designed to appeal to Democrats who want to fight income inequality — and make life difficult for Republicans if they oppose it.
Under the current Tax Code, administration officials say, someone who inherits $50 million in stock — in a portfolio that was originally worth $10 million — doesn’t have to pay income tax on the $40 million capital gain. Because of that rule, “hundreds of billions” of dollars of capital gains go untaxed, administration officials say.
The impact of the changes, they say, would fall almost completely on the top 1 percent of earners and make the Tax Code more fair to everyone else.
They’re also counting on money from the financial fees. Obama has proposed the tax on big banks before, but the latest version reflects the continuing angst in his party, from Sen. Elizabeth Warren and other banking industry critics, over whether enough has been done to crack down on Wall Street’s risk-taking.
His earlier proposal was mostly pitched as a way to recover money from big banks to ensure taxpayers were made whole following the 2008 bailouts. Now the White House is emphasizing that the tax would target risk-taking, particularly the degree to which firms rely on borrowed funds, or leverage, for their operations.
Under the proposal, a fee would be charged on the liabilities of financial institutions with more than $50 billion in assets, which is about 100 firms.
The goal, according to one senior administration official, is to punish “the largest and most risky borrowing in the system” that can still hurt middle-class Americans even after the banking reforms that followed the 2008 financial crisis.
Zachary Warmbrodt, Brian Faler and Kelsey Snell contributed to this report.
No comments:
Post a Comment