Increasing inheritance taxes and upper income taxes, Obama plans will benefit the middle class, providing more tax breaks to married couples, families, and students
WASHINGTON, January 18, 2015 — President Obama will lay out a plan to extend tax credits to the middle class by hiking taxes on wealthier Americans and big banks during his State of the Union address on Tuesday.
Details released by the White House on Saturday say that the new plan will generate $320 billion over the next 10 years and expand tax credits for higher education, child care payments, and create tax breaks for two-income families and couples.
“What you’re seeing here is really dedicated middle-class tax relief to really get at that problem of middle-class wage stagnation,” said Harry Stein, director of fiscal policy at the Center for American Progress, a Washington group aligned with Democrats.
By 2014, the middle-class rate had declined to 13.7 percent — it was lower during the recession — while the wealthiest were paying 33.4 percent.
The top tax rate on capital gains and dividends will increase to 28 percent from 23.8 percent with the president’s new plan. When Obama took office in 2009, the rate was 15 percent, meaning that he’s working toward doubling capital gains on the top earners.
Ending what the White House calls “the largest capital gains loophole,” the proposal will also impose capital gains taxes on assets that transfer at the time of death.
Under current law, assets held until death aren’t subject to capital gains taxes. This creates an incentive for wealthy people to hold onto assets that can be transferred without taxation to heirs that only have to pay capital-gains taxes when they sell those “gifts.”
Furthermore, that taxation would only be on the value above what the assets were worth at death.
This means that an asset that had a value of $500,000 in 1975 and that has a value of $1,000,000 at the time of death, transfers to an heir without taxation. If the heir then sells that asset at a later date and the value of that asset then is $1,025,000, the taxable rate is only on the $25,000 post-death gain.
The administration’s proposal on capital gains at death would exempt the first $200,000 in capital gains per couple plus $500,000 for a home, along with all personal property except for valuable art and collectibles.
The rest would be treated for income-tax purposes as if it had been sold.
The plan would also delay taxes on “inherited small, family-owned and operated businesses” until the business is sold and let any closely held businesses spread the taxes over 15 years.
According to the White House, 99 percent of the tax burden from the capital-gains proposals would be paid by the top 1 percent of households, and more than 80 percent would be paid by the top 0.1 percent.
Republicans are proposing that more sweeping changes to the overall tax code — rather than targeting what they consider to be the country’s top providers with higher taxes — provides better incentives for business growth and economic stimulus.Click here for reuse options!
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