President Barack Obama proposed a new Robin Hood-esque tax plan that would take from the rich and give to everyone else. The plan would raise taxes on capital gains and close various breaks for the wealthy in order to finance more generous education, family and retirement benefits for those further down the income ladder. Obama is expected to push the plan Tuesday in his State of the Union address.
The administration explains that the plan is designed to aid the middle class while having the rich pay an appropriate amount of taxes.
“By ensuring those at the top pay their fair share in taxes, the president’s plan responsibly pays for investments we need to help middle-class families,” the administration said. The plan is expected to go against the Republican-controlled Congress, where lawmakers have already complained about recent tax increases on the wealthy.
Obama’s proposed tax plan will affect 5 things: capital gains, middle and low-income family tax credits, education breaks, tax-preferred retirement plans, and bank tax.
The administration aims to increase the capital gains top rate from 25 percent to 28, while expanding the number of things that would be subject to it. The administration’s plan would greatly limit the stepped-up basis “loophole,” which though not exclusive, greatly benefits the wealthy. Under Obama’s plan, capital gains taxes would almost double from 2012.
The administration’s plan will provide more aid for middle and low-income families. It would extend expiring parts of the child tax credit, the earned income tax credit for low-income workers and create a new $500 “second-earner credit.” The new provision is aimed at married couples, particularly those with young children, who may feel it doesn’t make economic sense for both to work. The maximum child care tax credit will also be boosted to $3,000, while the EITC for childless workers will be expanded.
The administration wants to extend the American Opportunity Tax Credit, the administration’s signature higher-education tax benefit that’s scheduled to expire at the end of 2017, while making it more valuable to low-income students. Obama wants to prevent students who join a government program that forgives student loan debt after borrowers make payments for 20 years from being hit with unexpected tax bills. Other parts of the administration’s plan would exempt Pell grants, which go to students from low-income families, from taxation.
The administration’s plan would target those who accumulate giant balances in tax-preferred retirement accounts by barring contributions to tax-preferred accounts once balances reach about $3.4 million. At the same time, the administration would expand tax breaks for small businesses that automatically enroll their employees in retirement savings accounts.
Lastly, the plan would also impose a seven basis point fee on the nation’s approximately 100 biggest banks which the administration claims would caution banks from borrowing heavily.
