23 July 2019

Obama Plan Reignites Tax Fight

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President Barack Obama’s plan for billions of dollars in tax increases and higher government spending, to be outlined in Tuesday’s State of the Union address, is reigniting familiar partisan debates about overhauling the tax code and how to best aid the middle class. The White House views Mr. Obama’s proposals as the start of a broad discussion with the new Republican Congress over a rewrite of the tax code that includes not just corporate but individual taxation, as GOP lawmakers have wanted. But in calling for tax increases, the White House may have complicated negotiations on an issue that both parties recently cited as ripe for compromise.

Mr. Obama surprised Republican leaders when the White House announced over the weekend that he will propose some $320 billion in tax increases over 10 years that are targeted at high-income Americans, and to use that money to pay for $235 billion in tax breaks mostly for moderate-income workers, plus other yet-unspecified initiatives.

The plan would increase taxes on investments held by high-income households by boosting top capital-gains tax rates and imposing capital-gains tax on many inherited assets. Republicans, who control the House and Senate, have balked at the president’s plan, calling it the type of redistribution of wealth that Mr. Obama has long known Republicans oppose. But like Mr. Obama, Republican congressional leaders, as well as some potential GOP 2016 presidential candidates, have said they want to more directly address the economic anxiety that persists despite a growing economy and falling jobless rate.

So far, most of the attention among Republicans has been on lifting incomes of working families by boosting economic growth, though some in the GOP are proposing federal programs and tax plans. Sen. Marco Rubio of Florida has called for increasing the child tax credit and creating a monthly credit for low-income earners, while Sen. Rand Paul of Kentucky proposes tax breaks to promote investment in poor communities.

Democrats generally praised Mr. Obama’s plan as rightly focused on the middle class and sluggish wage growth, although Mr. Obama is seeking only about half of the minimum of $1 trillion in tax increases some in his party want. The White House hopes, at minimum, that Mr. Obama’s proposals put political pressure on Republicans to come up with their own plans. The president’s ideas could also soothe lawmakers in his own party who are being asked by the White House to support new trade pacts they oppose.

Mr. Obama’s annual address to the nation Tuesday night appears designed to cement a legacy as an economic populist and provide a road map for Democratic candidates looking to rouse middle-class support in the 2016 elections.

Republicans already are irked by the president’s threats to veto two of the first pieces of legislation the new GOP-controlled Congress is considering: approving the Keystone XL pipeline and altering the Affordable Care Act. Some in the GOP said the president’s tax plan underscores a growing view that Mr. Obama appears unwilling to make significant compromises.

The White House said parts of Mr. Obama’s plan are modeled after Republican ideas, including a new fee on large banks and a tax break for households where two spouses work.

While Republicans rejected Mr. Obama’s tax plan, some said hopes for a deal weren’t extinguished.  Most of the GOP opposition stems from the plan to boost taxes on investment income, which Republicans say would harm economic growth by discouraging business investment and thereby hurt workers’ incomes.

Mr. Obama in his new proposal focuses on individual taxes, as opposed to the corporate tax code, at a time when broader consensus exists on the problems and solutions for the latter. Still, many Republicans have been wary of pursuing a business-only tax rewrite, in part because it could leave them vulnerable to charges that they are catering to corporations and the wealthy.

Mr. Obama’s plan would boost the top rate on capital gains to 28% from the current 23.8%. That is the rate paid by roughly the top 1% of earners, such as married couples making more than about $500,000. The plan also would impose capital-gains tax on many inherited assets, a move that the administration said would also fall largely on the wealthy.

Republicans continue to argue that across-the-board rate cuts are the best way to boost the economy. The proposed redistribution of wealth that would occur under the White House plan breeds resentment toward the highest earners, Republicans say, when they are often the most likely to be creating new jobs.

Administration aides said Mr. Obama—who succeeded in forcing significant increases in taxes on high-income households just after his 2012 re-election—still hopes to find common ground with GOP lawmakers on a comprehensive rewrite of the U.S. tax code, for both individuals and businesses.

Click here to access the full article on The Wall Street Journal. 

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