By Alan Olsen, CPA, MBA (tax)
Greenstein Rogoff Olsen & Co. LLP
The divide between Republicans and Democrats on Capitol Hill appears to be spreading even wider after President Obama used his State of the Union Address to take dead aim at high net worth individuals. The president wants to raise some $320 billion over a ten-year span by going after some of the so-called biggest tax loopholes that help the wealthy save on their taxes.
The president’s plan consists of three major proposals that would all affect the country’s top earners, especially those in the top one percent. The president wants to raise the capital gains tax rate as well as completely kill an inheritance tax break. He also wants to go after the country’s biggest and wealthiest corporations as well. Here is a closer look at the president’s proposals:
Increase Capital Gains Rate – capital gains are where many of the country’s wealthiest people make their money. Even though the capital gains tax rate has already increased from 15 percent to 23. 8 percent since President Obama took office, he wants to increase it all the way to 28 percent on couples who make more than $500,000.
Eliminate Inheritance Tax Break – the president also wants to eliminate the so-called “Trust Fund Loophole” in order to force estates to pay capital gains taxes on securities when they are actually inherited.
Fee for Wealthiest Companies – the last proposal takes aim at corporate America. The president wants to impose a fee on the roughly top 100 companies in the country, whose assets are worth $50 billion or more.
So what exactly does president Obama want to do with the extra $320 billion in tax revenue? Republicans argue that the money will simply go to waste because it will be used for additional big spending from the democrats. The President, on the other hand, claims the proposals will help the country’s middle and lower class families. Here is the plan he laid out:
Second Earner Tax Credit – the president wants to give second earner families a credit of up to $500 for those with an annual income of up to $210,000.
Expand Tax Credit for Child Care – increase the childcare tax credit to up to $3,000 per child under the age of 5. The president claims this would assist at least 5 million families pay for childcare costs.
Education Consolidation – a plan to consolidate six separate tax-breaks on education down into two. President Obama also called for changes that would make community college free for many students.
Earned Income Credit Expansion – the president wants to make the earned income credit available to some workers even if they don’t have children, as well as to non-custodial parents.
Retirement Savings – another one of the president’s proposals would give individuals the opportunity to enroll in an Individual Retirement Account if their employer does not offer them that opportunity.
While the president’s plan is very aggressive, it is not likely to go anywhere on Capitol Hill, as many lawmakers from Congress were already denouncing the proposed changes even before the president made them official in his speech. So, while Republicans now control both the house and the senate, with the White House still being occupied by President Obama for two more years, it is very unlikely that any true tax reform will take place any time soon. In any case, the debate over taxing the wealthy as a means to help the middle class is certain to rage on.