Escalating his battle with congressional Republicans, President Obama will propose $320 billion in higher taxes in his State of the Union address, mostly by raising the rate on capital gains and closing tax loopholes for wealthier families, senior administration officials said Saturday.
Mr. Obama also will call on lawmakers to impose a new fee on big banks with more than $50 billion in assets to discourage risky financial investments, a holdover from the Wall Street crisis that is sure to appeal to the president’s liberal base.
The money raised would pay for a variety of the president’s domestic-spending proposals for the middle class, including an initiative for the government to pay all tuition for community-college students. A senior administration official said Mr. Obama intends to make a forceful case in his speech that the economy has recovered from the recession, and he wants “to make sure this prosperity is shared by the middle class.”
Previewing Mr. Obama’s State of the Union address to Congress on Tuesday night, aides said the president will propose raising the top tax rate on capital gains to 28 percent, from the current 23.8 percent (20 percent, plus a 3.8 percent tax on unearned income to fund Obamacare) for individual taxpayers with an adjusted gross income of $200,000 or more. A senior administration official said the move would bring the top rate for capital gains taxes to the same level it was “under President Reagan” in the 1980s.
The administration officials, speaking to reporters on condition of anonymity, said Mr. Obama also will urge Congress to close the so-called “trust-fund loophole” that allows wealthy individuals to pass along certain investment gains to heirs without being taxed.
“Hundreds of billions [worth] of capital gains go untaxed every year,” one official said.
Raising the capital gains tax rate and closing the trust-fund loophole would raise about $220 billion over 10 years, and the new fee on large financial institutions would bring in another $110 billion over a decade, officials said.
Mr. Obama will propose using that new tax revenue to fund about $235 billion in new spending initiatives and expanded tax credits for the middle-class, setting up a renewed battle with congressional Republicans, who largely oppose a hike in capital-gains taxes.
Among the proposals that the president will discuss in his speech are:
• Creating a $500 “second earner” tax credit to help cover certain costs faced by families where both spouses work, estimated to benefit 24 million couples.
• Tripling the child-care tax credit, providing up to $3,000 per child under age 5, expected to reach about 5.1 million families.
• Providing students up to $2,500 a year toward completing a college degree, a proposal that is estimated to reach about 8.5 million families. This initiative is in addition to Mr. Obama’s proposal for government-paid community college tuition.
The bank fee, believed to target about 100 financial institutions, would discourage risky investment practices by “making it more costly for them to borrow heavily,” the White House said.