President Obama focused on ending what he described as tax “loopholes” in his State of the Union address Tuesday night, adding specific populist touches to a speech heavy on messaging targeted to the middle class.
The president’s rhetoric was immediately criticized by the Republican lawmakers in charge of taxes in Congress.
“Let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth,” Obama said, in his only reference to inequality during the speech.
Although he stayed away from specifics during the hour-plus-long speech Tuesday evening, Obama had spelled out in the days beforehand several tax hikes on high-income earners and wealthy Americans leaving bequests to their children.
Those include raising the tax rate on capital gains to 28 percent and imposing capital gains taxes on bequests currently shielded from taxation in current law. Those changes, described by the administration as ending “loopholes,” would be targeted to affect high-income earners and not small businesses.
Altogether, the tax increases would be expected to raise $320 billion over 10 years. Those tax revenues would be used to fund a number of initiatives tailored to middle-class interests.
Of those, Obama mentioned one in specific Tuesday night: expanded tax credits for child care.
“It’s time we stop treating childcare as a side issue, or a women’s issue, and treat it like the national economic priority that it is for all of us,” Obama said. He proposed more slots in child care and a new tax credit of up to $3,000 per child for care each year.
Nevertheless, those tax changes are likely to go nowhere in the GOP-controlled Congress.
“A $320 billion tax hike to fuel more government spending is not going to promote a healthy economy or improve the standard of living for working Americans and their families,” said Sen. Orrin Hatch, R-Utah, who heads the Senate’s tax-writing committee.
“Calling for expanding the death tax and raising the rates on capital gains, like the president did tonight, makes clear this White House is more about redistribution and populist class warfare than about actual bipartisan tax reform,” Hatch said.
Obama did touch on tax reform in his speech, although not in detail. In recent months, his advisers have named corporate tax reform as a top priority for boosting middle-class incomes.
“Let’s close loopholes so we stop rewarding companies that keep profits abroad and reward those that invest in America,” he said, referencing the roughly $2 trillion in profits held by U.S. corporations overseas to avoid the taxes that would accrue if they were repatriated.
“Let’s use those savings to rebuild our infrastructure and make it more attractive for companies to bring jobs home,” Obama said, an oblique reference to corporate tax reform that would raise tax revenues to be used for infrastructure spending. He added: “Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford.”
Infrastructure was another theme highlighted in the speech, with Obama saying that “21st century businesses need 21st century infrastructure — modern ports, stronger bridges, faster trains and the fastest Internet.”
Less space was given to the president’s other proposed tax changes or to housing finance beyond a recent Federal Housing Administration decision to lower the fees charge on mortgage insurance typically used by first-time homebuyers. Those details will be given more detail in the president’s upcoming budget proposal.
