The Slatest

Obama Wants to Increase Taxes on the 1 Percent to Finance Middle-Class Benefits

President Barack Obama delivers his State of the Union speech on Capitol Hill on Jan. 28, 2014.

Photo by Larry Downing-Pool/Getty Images

President Obama will use Tuesday’s State of the Union address to call on the Republican-led Congress to increase taxes on the wealthiest Americans, largely by making it more expensive to inherit money and cutting back on investment profits. That money then would be used in an array of programs designed to help out the middle class in what amounts to a bid to reform the tax code in a way that most helps working families, the White House said on Saturday. The new initiatives to help the middle class include a tripling of the child-care tax credit as well as a new tax credit for families in which both spouses work, reports the Wall Street Journal. Plus there’s a program to increase private retirement savings and the previously announced plan to make two years of community college free.

The new tax cuts and programs would cost a total of $235 billion over the next decade—$175 billion for the tax cuts and $60 billion for the community college plan—but that would be more than offset by the $320 billion in additional revenue that would be generated with the increases on taxes for the wealthiest Americans. The main point of that plan involves imposing capital-gains taxes on assets transferred when someone dies, which has the campaign-friendly name of “the trust-fund loophole.” The White House describes it as “perhaps the largest single loophole in the entire individual income tax code.” Separately, the president would also propose increasing the top tax rate for capital gains and dividends to 28 percent from 23.8 percent for couples that earn more than $500,000 a year. “The rate was 15 percent when Obama took office in 2009, meaning that he’s proposing to almost double it over his two terms in office,” notes Bloomberg. But the White House took pains to emphasize that 99 percent of the tax increases would fall on the top one percent of taxpayers.

Even though there are signs the economy has improved, “the middle class has yet to experience the prosperity shown in the recovery,” a senior administration official said in a line of thinking that Obama is likely to push on Tuesday. The political goal seems clear. Politico explains:

The message: Wage stagnation? Obama’s on it. And if Republicans say no—especially to catchy-sounding ideas like getting rid of the “trust fund loophole”—they can explain it to voters in 2016.

It’s a way for Obama to position himself as a defender of the middle class and a fighter against stagnant wages, as an opening bid in any negotiations with Republicans on revamping the tax code — one of the few areas where GOP leaders say there could be the potential for a deal with Obama during his final two years in office.

The proposal also shows how the White House is increasingly confident that the U.S. economy will continue improving. “For the past year and a half, it has debated how much it could trumpet the recovery when so many Americans have not felt any change in their own economic outlook,” notes the Washington Post. The plan though is bound to receive a strong pushback from Republicans, who have long been opposed to increasing what many describe as “death taxes” as well as capital gains rates. Administration officials already have at least one comeback ready: The capital gains tax rate was 28 percent when President Ronald Reagan was in office.