In his State of the Union address Tuesday, President Barack Obama is expected to lay out his proposal for raising certain taxes on the wealthy to pay for tax relief for working and middle-class households.
Republicans are countering that isolated tax measures that create winners and losers could backfire and stifle economic growth. Instead, they stress that Congress and the president should work together to enact comprehensive tax reform coupled with entitlement reform that could potentially benefit more households long-term.
Obama’s plan calls for raising the top tax rate on capital gains and dividends to 28% from 23.8%, as well as imposing new capital-gains taxes on asset transfers at death, according to Bloomberg. Exemptions would include the first $200,000 in capital gains per couple, $500,000 for a home, and personal property except for valuable art and other collectibles.
Taxes would also be delayed for small family-owned businesses that were inherited, and such businesses could spread the capital gains tax over 15 years after sales, Bloomberg writes.
Obama also wants to levy additional taxes on the liabilities of financial institutions with more than $50 billion in assets, according to Bloomberg. Much of the expected $320 billion in proceeds over 10 years from all of the tax increases would go toward paying for tax credits intended for working and middle-class households.
Tax breaks would include a $500 tax credit for married couples when both spouses work, for those making up to $120,000. (Those making up to $210,000 would get a partial credit.) Obama also wants to triple the maximum tax credit for child care to up to $3,000 for children under five.
Harry Stein, director of fiscal policy at the Center for American Progress, told Bloomberg that Obama’s plan is “really dedicated middle-class tax relief to really get at that problem of middle-class wage stagnation.”
But the article also included a statement by Republican Orrin Hatch, chairman of the Senate Finance Committee: “The president needs to stop listening to his liberal allies who want to raise taxes at all costs and start working with Congress to fix our broken tax code.”
Senator Mike Crapo, Idaho Republican, wrote in the Teton Valley News Friday that the president and Congress already have a solid blueprint to start negotiations on comprehensive tax and entitlement reform from Obama’s own 2010 National Commission on Fiscal Responsibility and Reform headed by Democrat Erskine Bowles, former chief of staff for President Bill Clinton, and Republican Alan Simpson, a former senator from Wyoming. Crapo was a member of that bipartisan commission.
“Our tax code is far too big, complex and anti-competitive to serve as the foundation for the economic growth our country needs,” Crapo wrote. “As mandatory programs comprise the majority of federal spending, debt solutions must also address automatic federal spending. Most importantly, we must improve the solvency of entitlement programs — Social Security, Medicare and Medicaid — to ensure that they are sustainable for current and future recipients.”
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