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Obama to pitch tax hikes on wealthy to help middle class

Obama is expected to continue to speak about income inequality and propose raising taxes on capital gains

President Barack Obama’s State of the Union address will propose closing multibillion-dollar tax loopholes used by the wealthiest Americans, imposing a fee on big financial firms and then using the revenue to benefit the middle class, senior administration officials said on Saturday.

Obama's annual address to a joint session of Congress on Tuesday night will continue his theme of income equality, and the administration says it is optimistic it will find some bipartisan support in the Republican-controlled House of Representatives and Senate.

In a conference call with reporters to preview the taxation aspect of Obama's address, one White House official said some of the ideas the president is outlining already have "clear congressional bipartisan support or are ideas that are actually bipartisan in their nature."

But the proposals administration officials listed on Saturday will likely generate significant opposition from the Republicans because they would increase taxes.

Obama's proposals call for reforming tax rules on trust funds, which the administration called "the single largest capital gains tax loophole" because it allows assets to be passed down untaxed to heirs of the richest Americans.

Obama also is expected to call for lawmakers to make community college free for many students, increase paid leave for workers and enact broad cybersecurity rules.

Administration officials disclosed details on the tax proposals on the condition of anonymity because they were not authorized to discuss the proposals by name ahead of the president.

The centerpiece of the president's tax proposal is an increase in the capital gains rate on couples making more than $500,000 per year to 28 percent, the same level as under President Ronald Reagan. The top capital gains rate has already been raised from 15 percent to 23.8 percent during Obama's presidency.

Obama also wants to close what the administration is calling the "Trust Fund Loophole," a change that would require estates to pay capital gains taxes on securities at the time they're inherited. Officials said the overwhelming impact of the change would be on the top 1 percent of income earners.

While GOP leaders have said they share Obama's desire to reform the nation's complicated tax code, the party has long been opposed to many of the proposals the president will outline Tuesday. For example, most Republicans want to lower or eliminate the capital gains tax and similarly want to end taxes on estates, not expand them.

Administration officials pointed to a third proposal from the president as one they hope Republicans would support: a fee on the roughly 100 U.S. financial firms with assets of more than $50 billion. Officials said the fee is similar to a proposal from former Republican Rep. Dave Camp of Michigan, who led the tax-writing Ways and Means Committee. Camp's plan, however, was part of a larger proposal to lower the overall corporate income tax rate.

Raising the capital gains rate, ending the inheritance loophole and tacking a fee on financial firms would generate $320 billion in revenue over a decade, according to administration estimates. Obama wants to put the bulk of that money into a series of measures aimed at helping middle-class Americans. Among them:

• A credit of up to $500 for families in which both spouses work. The administration says 24 million couples would benefit from the proposal, which would apply to families with annual income up to $210,000.

• Expanding the child care tax credit to up to $3,000 per child under age 5. The administration says the proposal would help more than 5 million families with the cost of child care.

• Overhauling the education tax system by consolidating six provisions into two, a move that could cut taxes for 8.5 million families. Republicans have been open to the idea of consolidating education tax breaks.

Obama's call for higher taxes on the wealthy could further antagonize Republicans who are already angry with the president over his vows to veto several of the party's priorities, including legislation to approve construction of the Keystone XL oil pipeline, make changes to the Affordable Care Act and block his executive actions on immigration.

"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," Sen. Orrin Hatch, R-Utah, the chairman of the Finance Committee, said in a statement. "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."

Even before officials revealed Obama's tax proposals, Republicans were saying that his veto threats are a sign of a president who didn't get the message from voters who relegated his party to minority status in the November election. New Senate Majority Leader Mitch McConnell, R-Ky., said the president still has a chance to change his tone.

"Tuesday can be a new day," McConnell said Friday. "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."

Al Jazeera and wire services 

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