President Obama’s State of the Union Speech to Include Tax Proposal

During his annual State of the Union address this week, President Obama will reveal a tax proposal that administration officials say aims to slow down the power shift from poor to rich and give average families the resources they need.

Eliminating Stepped Up Basis

Of the estimated $320 billion in new revenue the president is seeking, $210 billion would come from a pair of adjustments to capital gains taxes. The first adjustment would close the so-called “trust fund loophole,” a feature of the tax code that “lets the wealthy pass appreciated assets onto their heirs tax-free,” according to the White House.

Raising Capital Gains and Dividend Rates

Capital gains and dividends rates have been reduced over the past thirty years or so, purportedly to encourage investment. Those rates were 28% for high-income taxpayers during the Reagan Era but have since dropped to the current levels (generally, 20% at the top, 15% for those in the middle). The President’s plan would push those rates back up for those at the top.  It would raise capital gains taxes on the top 1 percent of income earners, currently at 15 percent, to 28 percent.

Fees on U.S. Financial Firms

An additional $110 billion would come from a new fee on highly leveraged financial services firms (firms bearing a heavy debt load) with more than $50 billion in assets. Roughly 100 firms would be targeted by the new fee, which a White House fact sheet argued would help “discourage excessive borrowing.”

Assistance For Working Spouses

The president would offer a $500 second-earner tax credit that allows spouses in two-earner families to obtain a tax credit now available to the principle earner.

Increasing Childcare Tax Credit

The President would also triple the child care tax credit to $3,000, a move that could benefit 5.1 million families with children under 5 and 6.7 million families overall.

Education Tax Benefits

Under Obama’s proposal, six tax provisions would be consolidated into two and students would receive up to $2,500 a year to complete their degrees. Administration officials said this provision could cut taxes for more than 8.5 million people. It would also simplify taxes for more than 25 million families who claim education tax benefits. This part of the tax plan comes on the heels of another proposal the president announced earlier this month that would make community college free for full-time and part-time students who maintain a GPA of 2.5 or higher.

Benefits to Part-Time Workers

Finally, the president will also call for Congress to allow part-time workers to apply for and eventually receive retirement benefits through automatic enrollment in company-run savings plans.

For several articles reporting more on the State of the Union Speech, see below.

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