Obama Proposes $320 Billion Tax Hike for the Top 1 Percent
President Obama will outline an ambitious plan for tax increases on investments, inherited assets, and financial firms in his State of the Union address that would fund tax breaks for middle-class families.
The administration said the plan would generate $320 billion in revenue over the next decade, the bulk of which would come from eliminating the “step-up in basis” estate tax provision.
The step-up in basis means that current law, heirs who sell inherited assets have to pay capital gains taxes on the rise in value of that asset after it was inherited, and not its appreciation over the time it was owned by the bequeather. For instance, if an investor leaves a stock to an heir that rises from $2 to $50 while he owns it, and it rises from $50 to $55 before it’s sold by the heir, only $5 is taxed as a capital gain.
Obama’s proposed new rules would tax all of the $53 of appreciation.
According to a 2013 estimate by the Joint Tax Committee, $258 billion in tax revenue would be lost from fiscal years 2013 to 2017 because of the step-up in basis provision.
The proposal, billed as relief for the American middle class, would still preserve the step-up provision for up to $100,000 in capital-gains per individual, with an additional $500,000 exemption for the inheritance of personal residences. “Gifts of clothing, furniture, and small family heirlooms” but not “expensive art and similar collectibles” would also be exempt from the new tax.
The plan would also raise the top capital gains tax rate from 24 to 28 percent for couples making over $500,000 annually. It has already been raised from 15 to 24 percent during Obama’s presidency. It would also levy a small fee on the liabilities of around 100 financial firms with over $50 billion in assets.
Much of the revenue would finance education reform and a series of tax relief programs for American families, among them a $3,000 tax credit for each child under 5, a $500 credit for families making under $210,000 annually where both spouses work, and double the earned income tax credit for workers without children.
The plan would also expand the American Opportunity Tax Credit that gives $2,500 per year in credits to eligible students over a period of five years.
The White House said the new tax burdens would fall almost entirely on the wealthiest “1 percent,” a term popularized by the Occupy Wall Street movement.
The proposed tax hikes follows the president’s repeated references to the issue of economic inequality in the United States, which has grown steadily in the past three decades. The fraction of national wealth held by the top 1 percent is the largest since the 1920s, and the inflation-adjusted median wage has fallen 4 percent from 1970 to 2010.
“This growing inequality is not just morally wrong, it’s bad economics,” he told a crowd at Knox College in 2013.
The proposals have been dismissed by Republican lawmakers, who control both chambers of Congress with the largest majority in the House since the 1950s.
A spokesperson for Rep. Paul Ryan (R-Wis.), chair of the Ways and Means Committee, has criticized the proposed tax hikes.
“[The tax hikes are] not a serious proposal,” said Ryan spokesman Brendan Buck, “We lift families up and grow the economy with a simpler, flatter tax code, not big tax increases to pay for more Washington spending.”
“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,” Republican Sen. Orrin Hatch said in a statement.
The proposals come at a contentious time between the White House and Congress. The president recent vowed to veto a bill passed by the House that would fund the Department of Homeland Security that would also undermine the president’s immigration policy, and also pre-emptively promised to veto any legislation expediting the construction of the Keystone XL pipeline.
Still, the White House remains optimistic.
“There are some ideas in the middle we may be able to agree on and we should make the case,” White House senior adviser Dan Pfeiffer said Sunday on CBS’s “Face the Nation.” “A few years ago, people would have said we had no chance to get the Republicans to agree to raise taxes on the very wealthy back to the level they were under Bill Clinton, and we succeeded in doing that.”