President Obama will use his state of the union address Tuesday to call for hundreds of billions of dollars in tax hikes in order to pay for programs targeting students, the middle class and retirees, the White House announced Saturday.
The president will propose financing his planned middle class tax cuts with tax hikes targeted at the “1 percent,” as well as a new tax on big banks.
The plan would raise over $300 billion over 10 years altogether. The bulk of that revenue would come through tax increases targeted at the investment income of high income earners and bequests by wealthy Americans.
Obama will propose to raise the tax rate on capital gains for high income earners from 23.8 percent to 28 percent, including the Medicare surtax imposed as part of Obamacare.
In addition to hiking the capital gains tax to roughly double where it was when he became president, Obama will seek to charge capital gains on assets held until death and then passed on to heirs. Under current tax law, such inheritances are not subject to income taxes and only face diminished capital gains taxes if they are later realized by heirs, in what a White House description of the plan called “perhaps the largest single loophole in the entire individual income tax code.”
Those changes to the tax treatment of investment income, according to the White House, would raise money while addressing a “basic unfairness” in the tax system.
The plan would also raise revenue with a new tax on the roughly 100 banks with assets over $50 billion.
Such large banks would be assessed a 0.07 percent levy on their liabilities, raising over $100 billion in 10 years.
The bank tax would effectively penalize big banks for their size and reliance on debt, counteracting what some critics of Wall Street say is an advantage big banks have in raising money because of the perception that the government would be forced to bail them out in a crisis. The White House said that the fee would lead banks to “to make decisions more consistent with the economy-wide effects of their actions” and reduce the probability of crises.
A similar fee was included in the tax reform draft proposal submitted by Republican Ways and Means Committee chairman Dave Camp last year. Camp retired at the end of the term, however, and his idea has not been favored by many other Republicans.
"Not a serious plan. We lift families up & grow the economy with a simpler, flatter tax code, not big tax increases to pay for more spending," a spokesman for Rep. Paul Ryan, R-Wisc., tweeted after the plan was announced.
Obama will call for a tripling of the child care tax credit, an expansion of the Earned Income Tax Credit and more federal funding for higher education.
He will also propose a "Second Earner Credit" of $500 for couples who work, which the White House claims would benefit 80 percent of two-earner households.
Obama's expansion will double the EITC for noncustodial parents and workers who lack children, make workers older than 21 eligible for the credit and raise the income level at which the benefit phases out. The president also seeks to make permanent benefits from the EITC and child tax credit that expire in 2017.
The president's proposed changes to the child care tax credit would bump the benefit to up to $3,000 per child for children under five, make the full credit available to families earning up to $120,000 per year and simplify child care flexible spending accounts.