Ahead of his India trip this weekend, President Barack Obama is all set to use his State of the Union Address on Tuesday to burnish his credentials as a messiah of the middle class by unveiling a package of new tax hikes on wealthy individuals and financial corporations to fund programmes to lift struggling middle class Americans.
But Obama’s ambitious plan to raise as much as $320 billion over the next 10 years through these new taxes could prove to be a non-starter as he, for the first time in his six years at the White House, faces both Houses of Congress under the control of Republicans, who are known for their stout opposition to the Democrats’ world view on tax matters.
This reality notwithstanding, the White House has already laid out the Obama plan in some detail. As part of tax hikes targeting the rich, Obama will propose raising capital gains and dividend tax rates to 28 per cent for high earners and imposing a fee on the liabilities of about 100 financial institutions. He will also seek to eliminate tax breaks on inheritances.
“Our tax code in unfair, allowing the rich to play by different rules,” said a fact sheet issued by the White House. “The 400 richest taxpayers paid an average tax rate below 17 per cent in 2012, lower than many middle-class families,” it said, adding the Obama plan aims to close the “Trust Fund loophole” and end wasteful tax policies to level the playing field for the middle class.
The Obama plan, it is said, will cut taxes for 8.5 million families and students. It will also simplify taxes for more than 25 million families and students who claim education tax benefits.
“I’ll call on this new Congress to join me in putting aside the political games and finding areas where we agree so we can deliver for the American people,” Obama himself said as he previewed the plan in his weekly radio address on Saturday.
Under his proposal, if only approved by Congress, couples making more than $500,000 a year will see an increase in the capital gains and dividends rate to 28 per cent. Obama had previously raised this tax rate from 15 per cent to 23.8 per cent. According to officials, much of the impact of Obama’s change will be confined to the top 1 per cent of income earners.
“From proposing to make community college free for every responsible student and extending sick leave to working families, to acting on his own to cut mortgage premiums by $900 for families looking to buy a home, the President has already taken steps to ensure that all Americans can share in the benefits of our economic recovery,” the White House said.
As part of the benefits for the middle class, Obama will lay out a new $500 second earner credit to help cover the additional costs faced by families where both spouses work – a proposal that could benefit 24 million couples.
But the Republicans have already begun slamming the Obama proposals. “Slapping American small businesses, savers and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings, and create jobs,” said Republican Senator Orrin Hatch, the new chairman of the Senate Finance Committee, adding: “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.”