President Barack Obama will unveil a slate of reforms during Tuesday’s State of the Union speech aimed to close “unfair” tax loopholes and ease the financial burden on middle class families. But he’ll likely get a fight from Republicans on some key parts of his proposal.
Historically, it has been a challenge for both political parties to find common ground on taxes. Corporate tax reforms, however, are one area that Obama and Republicans, who now control Congress after a sweeping victory in the midterm elections, have identified as a point of possible agreement this year.
Still, the devil is in the details, and senior Obama administration officials are counting on the public to get behind the plan, which targets wealthy individuals and financial firms. The administration is touting how it wants to revamp the tax code and eliminate various loopholes as more ways to keep the American economy on the upswing and help grow the middle class.
The tax reforms would raise about $320 billion in revenue over the next decade, the administration said.
“The president will have a chance to go before the nation to tell America, ‘Here’s how far you have come, here’s what works in doing that,’ and then he will be able to lay out the vision for what are the steps that we need to take,” a senior administration official told NBC News on Saturday.
“Our estimation is, not having provided this additional context ahead of time, it’s going to make the speech and the vision more meaningful when [the people] hear it on Tuesday night,” the senior official added.
In the lead up to Obama’s next-to-last State of the Union address, the president has spent recent weeks unveiling somewhat smaller administration proposals, from providing free community collegefor qualified students to endorsing paid sick leave and ways to bolster online security in the wake of the Sony Pictures cyber attack.
Republican leaders have already warned that they will fight Obama and advance their own agenda on issues such as health care and the environment — underscoring the possibility of more gridlock in Washington. While tax reform could be friendlier territory, senior administration officials admit proposals to raise capital gains rates — something Obama has pushed for previously — and close capital gains loopholes would be the hardest parts to get passed. Among the proposed reforms:
- Closing the trust fund loophole, which the administration says allows hundreds of billions of dollars to escape untaxed and means wealthier Americans aren’t paying their “fair share” on inherited assets.
- Raising the total top capital gains and dividends rate back to the level under President Ronald Reagan of 28 percent, which would affect couples making more than $500,000. Current realized cap gains are taxed at 20 percent with a 3.8 percent surcharge.
- Placing a fee on the biggest financial firms, making it more costly for them to borrow.
Such measures would help the country pay for other programs, including providing free community college, officials said. They added that Obama plans to unveil other proposals for working and middle class families, including a $500 tax credit for second earners in families, which could aid an estimated 24 million couples, and streamlining child care tax incentives amounting to a tax cut of up to $3,000 per child.
Before any of the proposals can get through Congress, Senate Majority Leader Mitch McConnell, R-Ky., has already warned that the president needs to abandon what McConnell characterizes as a go-it-alone approach. “Tuesday can be a new day,” said McConnell, according to The Associated Press. “This can be the moment the president pivots to a positive posture, this can be a day when he promotes serious realistic reforms that focus on economic growth and don’t just spend more money we don’t have. We’re eager for him to do so.”