President Obama will call for higher taxes on the wealthy and large financial institutions in his State of the Union address on Tuesday.
Obama will propose that the $320 billion in tax hikes be used to pay for tax cuts for the middle class, as well as a range of programs, the White House said Saturday.
The proposal calls for raising the base capital gains rate to 24.2 percent from 20 percent. The 3.8 percent Medicare surcharge pushes that level to 28 percent total, White House officials said, up from 23.8 percent. The plan would affect couples with incomes of at least $500,000 a year.
About $210 billion would be generated from the capital gains changes and $110 billion from adding a new fee on financial firms with more than $50 billion in assets – an estimated 100 companies – that would make it more costly for them to borrow heavily and take on more risk, officials said.
The White House said the “president is not piling on additional taxes” but instead ensuring that the highest earners pay their fair share of taxes on the money they make.
“These are proposals he thinks are necessary to fill out the vision of how the middle class can get ahead in today’s economy,” a senior administration official said on Saturday.
Administration officials say the funds generated by the plan are more than enough to cover the estimated $235 billion in new initiatives proposed by the president over the past week.
Those proposals include the $60 billion over 10 years for two years of free community college. Other plans include expanding sick leave for workers, lowering mortgage premiums and extending broadband Internet service.
The president has been gradually unveiling proposals he argues will help those hit hardest by the economic downturn ahead of his first major address to the Republican-controlled Congress.
White House officials said they are hoping that the ideas will get a positive reaction and will lead to conversations with the Republicans about how to implement this piecemeal approach to tax reform. Administration officials said a number of the ideas the president will present “have clear congressional bipartisan support.”
The plan, however, faces an uphill battle in Congress.
“This is not a serious plan,” Brendan Buck, a spokesman for House Ways and Means Chairman Paul RyanPaul RyanSanders set for clash with Trump’s budget pick Is healthcare law really going into a ‘death spiral’? Trump hosts Hill leaders for ice breaker MORE (R-Wis.), said on Twitter.
“We lift families up and grow the economy with a simpler, flatter tax code, not big tax increases to pay for more Washington spending.”
But Robert Greenstein, president of Center on Budget and Policy Priorities, said that the plan should boost growth.
"The president’s new tax proposals will surely elicit howls of protest from various special interests and on ideological grounds, adversaries will make predictable claims that the proposals would harm the economy and jobs," Greenstein said.
"Yet while the proposals do present a major challenge to the status quo, they should benefit economic growth, not hinder it, while substantially helping tens of millions of middle- and lower-income working families and individuals."
With the $320 billion expected to be generated from the change in tax policies, the president is proposing a new $500 second-earner credit to help cover the additional costs, such as commuting, of families with two working spouses. That plan is expected to benefit 24 million couples, the White House said.
Another proposal would streamline and expand childcare tax benefits, providing up to $3,000 per child under age 5, helping 5.1 million families that make up to $210,000 a year and cover costs for 6.7 million children.
The president’s plan would overhaul the education tax system by consolidating six overlapping provisions into two and provide students up to $2,500 a year toward completing a college degree. The plan would provide the break for five years instead of four to complete a degree.
In addition, the plan would make it easier to save for retirement by requiring employers to provide a savings vehicle for their employees whether through individual retirement or savings accounts, which would help an estimated 30 million workers, the officials said.
The plan is similar to a Democratic proposal released last Monday by Rep. Chris Van Hollen (D-Md.) that would also add a financial fee and aim to rebalance the tax code back toward middle-class workers.
As the economy continues its recovery, the White House said the focus of the president’s message on Tuesday is building “on this progress, to raise wages and incomes, and strengthen the standing of working families in a new economy.”
“On Tuesday, the president will lay out his vision for how to do that,” an administration official said.
Van Hollen, the ranking member of the House Budget Committee, said on Sunday that the president's plan makes it "clear that President Obama and Democrats are focused on reducing the economic squeeze being felt by the middle class and those working hard to join the middle class."
"I’m pleased that pieces of this proposal overlap with the plan I recently outlined," he said.
--This report was updated on Jan. 18 at 1:28 p.m.