Obama to propose tax rate changes

WASHINGTON – 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.

The 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 the proposal will likely be 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 further 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 have signaled they will hammer the Democrats’ record.

Unwilling to cede the turf, Obama will use his tax proposal to show how he – and presumably the Democrats – would help struggling Americans.

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 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 taxpayers 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.

Currently, estates valued at more than $1 million are taxed, and the estates of 114,600 people were subject to the tax in 2013, according to nonpartisan Tax Policy Center.

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 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 affect 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 Rep. Dave Camp, R-Mich., the former House Ways and Means Committee chairman. Critics said Camp’s proposal for an excise tax on financial institutions could increase taxes for homeowners and homebuyers.

Obama will urge using the tax receipts 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 retirement accounts by requiring every employer with more than 10 employees to enroll their workers in individual retirement accounts if they do not now 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.