Obama Proposes Tax Increases on Wealthy to Aid Middle Class (2)
2015-01-18 03:39:53.826 GMT
(Updates with comments from Hatch in fifth paragraph,
Boehner, McConnell spokesmen in 11th paragraph.)
By Richard Rubin and Margaret Talev
(Bloomberg) -- President Barack Obama is proposing new
taxes on the wealthiest Americans that would limit their profits
from investments and make it harder for them to pass assets to
heirs.
Obama, who will promote the plan during his Jan. 20 State
of the Union Address, will use much of the proceeds -- $320
billion over 10 years -- to expand tax credits for higher
education and child care and create a new break for two-earner
couples. The White House released details of the plan Saturday.
“What you’re seeing here is really dedicated middle-class
tax relief to really get at that problem of middle-class wage
stagnation,” said Harry Stein, director of fiscal policy at the
Center for American Progress, a Washington group aligned with
Democrats.
Obama’s tax plan faces opposition in the Republican-
controlled Congress, where lawmakers want to cut tax rates and
curtail targeted breaks. The two parties agree more on business
tax changes, though an accord on that isn’t close.
“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,” Republican Orrin
Hatch, the chairman of the Senate Finance Committee, said in a
statement Saturday. “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.”
2-Year Agenda
The president’s address is intended to lay out an agenda
for his final two years in office and help the Democratic Party
retain the White House in the 2016 election with a legacy of
policies that appeal to middle- and lower-income voters, who
continued to lose ground as the economy rebounded from the
recession.
He would increase the top tax rate on capital gains and
dividends to 28 percent from 23.8 percent. The rate was 15
percent when Obama took office in 2009, meaning that he’s
proposing to almost double it over his two terms in office.
He would also impose capital-gains taxes on asset transfers
at death, ending what the White House calls “the largest
capital gains loophole.” Under current law, assets held until
death aren’t subject to those levies, creating an incentive for
wealthy people to hold onto them. Heirs only have to pay
capital-gains taxes when they sell and only on the value above
what the assets were worth at death.
Speech Preview
Obama has been previewing his proposals over the past 10
days in speeches around the country. In addition to the tax
plan, he said he will push Congress for legislation allowing
workers to earn seven days of paid sick leave per year and make
community college free for millions of students, at a cost of
$60 billion over 10 years.
Obama, who has consistently advocated for tax increases on
the wealthy and tax cuts for middle-income families, is offering
more of both in the tax plan released Saturday. He is layering
new proposals on top of others that Congress has ignored or
rejected.
Spokesmen for House Speaker John Boehner and Senate
Majority Leader Mitch McConnell both criticized the plan.
‘Outdated Code’
“Republicans believe we should simplify America’s outdated
tax code,” said Don Stewart, deputy chief of staff for
McConnell. “Tax reform should create jobs for families, not the
IRS.”
The administration’s proposal on capital gains at death
would exempt the first $200,000 in capital gains per couple plus
$500,000 for a home, along with all personal property except for
valuable art and collectibles. The rest would be treated for
income-tax purposes as if it had been sold.
The plan would also delay taxes on “inherited small,
family-owned and operated businesses” until the business is
sold and let any closely held businesses spread the taxes over
15 years.
According to the White House, 99 percent of the tax burden
from the capital-gains proposals would be paid by the top 1
percent of households, and more than 80 percent would be paid by
the top 0.1 percent.
People with significant amounts of unrealized gains include
founders of successful businesses and others who inherited
businesses decades ago.
More Owed
Even with the limits, the changes would create new tax
burdens for some families that are exempt from the estate tax
under laws Obama signed, which limited the tax to couples worth
more than $10.86 million.
As a simplified example, consider a couple who died with $5
million in assets, including $2.5 million in stock with a basis
of $500,000. Under current law, they could pass that to their
children with no taxes. Under Obama’s plan, they could owe about
$500,000.
The White House dubbed the break the “trust fund
loophole,” though it is used by people without trust funds.
“That’s an extremely powerful planning tool,” Stein said.
And you can still access income from unrealized capital gains’’
with loans.
Obama is also renewing and expanding an earlier proposal
for a fee on the liabilities of about 100 financial institutions
with assets exceeding $50 billion.
Expanded Breaks
This year’s version is a seven-basis-point fee on their
total liabilities and would raise an estimated $110 billion over
a decade. The new version of the tax has a lower rate, a broader
base and would raise about twice as much money as before.
It would apply not just to bank holding companies and the
narrower set of financial institutions included in last year’s
plan. Instead, it would now affect asset managers and insurance
companies, said a senior administration official, who spoke on
condition of anonymity to describe the plans before the speech.
Obama would use the proceeds from the tax increases to
expand breaks for lower-income and middle-income families.
In 2007, when Obama started running for president, the
middle 20 percent of households had an effective federal tax
rate of 14.4 percent and the top 1 percent paid 27.4 percent,
according to the Tax Policy Center. By 2014, the middle-class
rate had declined to 13.7 percent -- it was lower during the
recession -- while the wealthiest were paying 33.4 percent.
Child Care
The newest part of that plan is a $500 tax credit for
married couples when both spouses work, an attempt to combat the
reluctance of lower-earning spouses to work because their income
is taxed at marginal rates for the combined couple.
The full tax credit would be available for couples with
incomes up to $120,000 and those earning up to $210,000 would
get a partial credit.
Obama would also triple the maximum tax credit for child
care to up to $3,000 for children under 5. The government would
effectively pay half of the first $6,000 of child care per child
for some families. The maximum credit could be claimed by
families making as much as $120,000.
Neither the second-earner credit nor the child-care credit
would be refundable, the official said, meaning that they would
only benefit families with income-tax liability.
As part of those changes, Obama would repeal flexible
spending accounts for child care, which let people set aside up
to $5,000 a year before taxes. Because those function like
deductions, the accounts are more valuable to families with
higher incomes and marginal rates.
Retirement Plans
Obama would also consolidate several education tax breaks
into a single tax credit worth up to $2,500. Part-time students
would be eligible for a partial credit.
He is also proposing to end taxation of some student loan
debt forgiven under income-based repayment plans. To help pay
for that, Obama would repeal the deductibility of student loan
interest for new borrowers.
The plan announced Saturday also continues two past Obama
ideas on retirement policy. He wants to require companies to
automatically enroll workers in individual retirement accounts.
And he wants to limit contributions to tax-advantaged retirement
accounts for people who have about $3.4 million in them.
Some of those ideas -- the bank fee, consolidating
education credits and breaks for two-income households -- have
had bipartisan support, with differences on the details.
Even so, most of them are unlikely to advance in a
Republican-controlled Congress.
Push, Shove
Representative Paul Ryan of Wisconsin, who is chairman of
the House Ways and Means Committee, told reporters Jan. 15 that
Republicans wouldn’t be able to undertake the “full-throttle
tax reform” they wanted to pursue because of Obama’s opposition
to cutting marginal tax rates for individuals.
Senator John Thune, a South Dakota Republican, said
Republicans were interested in making the biggest tax code
changes since 1986 and are looking to Obama to work with them.
“So far what we’ve seen is the White House and the
president have expressed interest rhetorically in the issue of
tax reform,” he said at the party’s retreat Jan. 15 in Hershey,
Pennsylvania. “But when push comes to shove, really engaging
the Congress -- we’ve not seen that.”
Following his State of the Union speech, Obama plans to
promote the initiatives in two Republican-dominated states,
Idaho and Kansas. He’ll speak at Boise State University on Jan.
21 and at the University of Kansas in Lawrence the next day.
For Related News and Information:
Tax Cuts Get Boost From Republican Change to U.S. House Rule
Hatch’s Well-Worn Gavel to Shape Deals in Republican Senate
Ryan Rules Out Gas Tax Increase, Major Individual Tax Changes
Top Stories:TOP<GO>
U.S. Federal Budget: BUDG <GO>
Tax News: NI TAX <GO>
--With assistance from Billy House in Hershey, Pennsylvania.
To contact the reporters on this story:
Richard Rubin in Washington at +1-202-654-7307 or
rrubin12@bloomberg.net;
Margaret Talev in Washington at +1-202-624-1923 or
mtalev@bloomberg.net
To contact the editors responsible for this story:
Jodi Schneider at +1-202-654-7362 or
jschneider50@bloomberg.net
Bernard Kohn, Jim McDonald
2015-01-18 03:39:53.826 GMT
(Updates with comments from Hatch in fifth paragraph,
Boehner, McConnell spokesmen in 11th paragraph.)
By Richard Rubin and Margaret Talev
(Bloomberg) -- President Barack Obama is proposing new
taxes on the wealthiest Americans that would limit their profits
from investments and make it harder for them to pass assets to
heirs.
Obama, who will promote the plan during his Jan. 20 State
of the Union Address, will use much of the proceeds -- $320
billion over 10 years -- to expand tax credits for higher
education and child care and create a new break for two-earner
couples. The White House released details of the plan Saturday.
“What you’re seeing here is really dedicated middle-class
tax relief to really get at that problem of middle-class wage
stagnation,” said Harry Stein, director of fiscal policy at the
Center for American Progress, a Washington group aligned with
Democrats.
Obama’s tax plan faces opposition in the Republican-
controlled Congress, where lawmakers want to cut tax rates and
curtail targeted breaks. The two parties agree more on business
tax changes, though an accord on that isn’t close.
“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,” Republican Orrin
Hatch, the chairman of the Senate Finance Committee, said in a
statement Saturday. “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.”
2-Year Agenda
The president’s address is intended to lay out an agenda
for his final two years in office and help the Democratic Party
retain the White House in the 2016 election with a legacy of
policies that appeal to middle- and lower-income voters, who
continued to lose ground as the economy rebounded from the
recession.
He would increase the top tax rate on capital gains and
dividends to 28 percent from 23.8 percent. The rate was 15
percent when Obama took office in 2009, meaning that he’s
proposing to almost double it over his two terms in office.
He would also impose capital-gains taxes on asset transfers
at death, ending what the White House calls “the largest
capital gains loophole.” Under current law, assets held until
death aren’t subject to those levies, creating an incentive for
wealthy people to hold onto them. Heirs only have to pay
capital-gains taxes when they sell and only on the value above
what the assets were worth at death.
Speech Preview
Obama has been previewing his proposals over the past 10
days in speeches around the country. In addition to the tax
plan, he said he will push Congress for legislation allowing
workers to earn seven days of paid sick leave per year and make
community college free for millions of students, at a cost of
$60 billion over 10 years.
Obama, who has consistently advocated for tax increases on
the wealthy and tax cuts for middle-income families, is offering
more of both in the tax plan released Saturday. He is layering
new proposals on top of others that Congress has ignored or
rejected.
Spokesmen for House Speaker John Boehner and Senate
Majority Leader Mitch McConnell both criticized the plan.
‘Outdated Code’
“Republicans believe we should simplify America’s outdated
tax code,” said Don Stewart, deputy chief of staff for
McConnell. “Tax reform should create jobs for families, not the
IRS.”
The administration’s proposal on capital gains at death
would exempt the first $200,000 in capital gains per couple plus
$500,000 for a home, along with all personal property except for
valuable art and collectibles. The rest would be treated for
income-tax purposes as if it had been sold.
The plan would also delay taxes on “inherited small,
family-owned and operated businesses” until the business is
sold and let any closely held businesses spread the taxes over
15 years.
According to the White House, 99 percent of the tax burden
from the capital-gains proposals would be paid by the top 1
percent of households, and more than 80 percent would be paid by
the top 0.1 percent.
People with significant amounts of unrealized gains include
founders of successful businesses and others who inherited
businesses decades ago.
More Owed
Even with the limits, the changes would create new tax
burdens for some families that are exempt from the estate tax
under laws Obama signed, which limited the tax to couples worth
more than $10.86 million.
As a simplified example, consider a couple who died with $5
million in assets, including $2.5 million in stock with a basis
of $500,000. Under current law, they could pass that to their
children with no taxes. Under Obama’s plan, they could owe about
$500,000.
The White House dubbed the break the “trust fund
loophole,” though it is used by people without trust funds.
“That’s an extremely powerful planning tool,” Stein said.
And you can still access income from unrealized capital gains’’
with loans.
Obama is also renewing and expanding an earlier proposal
for a fee on the liabilities of about 100 financial institutions
with assets exceeding $50 billion.
Expanded Breaks
This year’s version is a seven-basis-point fee on their
total liabilities and would raise an estimated $110 billion over
a decade. The new version of the tax has a lower rate, a broader
base and would raise about twice as much money as before.
It would apply not just to bank holding companies and the
narrower set of financial institutions included in last year’s
plan. Instead, it would now affect asset managers and insurance
companies, said a senior administration official, who spoke on
condition of anonymity to describe the plans before the speech.
Obama would use the proceeds from the tax increases to
expand breaks for lower-income and middle-income families.
In 2007, when Obama started running for president, the
middle 20 percent of households had an effective federal tax
rate of 14.4 percent and the top 1 percent paid 27.4 percent,
according to the Tax Policy Center. By 2014, the middle-class
rate had declined to 13.7 percent -- it was lower during the
recession -- while the wealthiest were paying 33.4 percent.
Child Care
The newest part of that plan is a $500 tax credit for
married couples when both spouses work, an attempt to combat the
reluctance of lower-earning spouses to work because their income
is taxed at marginal rates for the combined couple.
The full tax credit would be available for couples with
incomes up to $120,000 and those earning up to $210,000 would
get a partial credit.
Obama would also triple the maximum tax credit for child
care to up to $3,000 for children under 5. The government would
effectively pay half of the first $6,000 of child care per child
for some families. The maximum credit could be claimed by
families making as much as $120,000.
Neither the second-earner credit nor the child-care credit
would be refundable, the official said, meaning that they would
only benefit families with income-tax liability.
As part of those changes, Obama would repeal flexible
spending accounts for child care, which let people set aside up
to $5,000 a year before taxes. Because those function like
deductions, the accounts are more valuable to families with
higher incomes and marginal rates.
Retirement Plans
Obama would also consolidate several education tax breaks
into a single tax credit worth up to $2,500. Part-time students
would be eligible for a partial credit.
He is also proposing to end taxation of some student loan
debt forgiven under income-based repayment plans. To help pay
for that, Obama would repeal the deductibility of student loan
interest for new borrowers.
The plan announced Saturday also continues two past Obama
ideas on retirement policy. He wants to require companies to
automatically enroll workers in individual retirement accounts.
And he wants to limit contributions to tax-advantaged retirement
accounts for people who have about $3.4 million in them.
Some of those ideas -- the bank fee, consolidating
education credits and breaks for two-income households -- have
had bipartisan support, with differences on the details.
Even so, most of them are unlikely to advance in a
Republican-controlled Congress.
Push, Shove
Representative Paul Ryan of Wisconsin, who is chairman of
the House Ways and Means Committee, told reporters Jan. 15 that
Republicans wouldn’t be able to undertake the “full-throttle
tax reform” they wanted to pursue because of Obama’s opposition
to cutting marginal tax rates for individuals.
Senator John Thune, a South Dakota Republican, said
Republicans were interested in making the biggest tax code
changes since 1986 and are looking to Obama to work with them.
“So far what we’ve seen is the White House and the
president have expressed interest rhetorically in the issue of
tax reform,” he said at the party’s retreat Jan. 15 in Hershey,
Pennsylvania. “But when push comes to shove, really engaging
the Congress -- we’ve not seen that.”
Following his State of the Union speech, Obama plans to
promote the initiatives in two Republican-dominated states,
Idaho and Kansas. He’ll speak at Boise State University on Jan.
21 and at the University of Kansas in Lawrence the next day.
For Related News and Information:
Tax Cuts Get Boost From Republican Change to U.S. House Rule
Hatch’s Well-Worn Gavel to Shape Deals in Republican Senate
Ryan Rules Out Gas Tax Increase, Major Individual Tax Changes
Top Stories:TOP<GO>
U.S. Federal Budget: BUDG <GO>
Tax News: NI TAX <GO>
--With assistance from Billy House in Hershey, Pennsylvania.
To contact the reporters on this story:
Richard Rubin in Washington at +1-202-654-7307 or
rrubin12@bloomberg.net;
Margaret Talev in Washington at +1-202-624-1923 or
mtalev@bloomberg.net
To contact the editors responsible for this story:
Jodi Schneider at +1-202-654-7362 or
jschneider50@bloomberg.net
Bernard Kohn, Jim McDonald