The Obama administration isn't waiting until Tuesday night's State of the Union address to let the American public know about the bold plans the president will propose. Over the weekend, the administration
previewed a major tax overhaul to
benefit middle-class and low-income families, paid for through a fee on the 100 biggest banks and by closing tax loopholes that benefit the very wealthy.
Families earning less than $210,000 a year would be able to claim at least part of a new "second-earner credit" that would top out at $500 a year. The maximum child tax credit would triple from $1,000 to $3,000, while the Earned Income Tax Credit for low-income workers would also expand. That's not all:
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 also wants to fix an issue in which those who join a government program that forgives student loan debt after borrowers make payments for 20 years can be socked with unexpected — and big — tax bills. That’s because the IRS considers forgiven debt to be equivalent to income and taxes it. Under the administration’s plan, that would end. Other parts of the administration’s plan would exempt Pell grants, which go to students from low-income families, from taxation.
So how would Obama pay for all these tax cuts? Well, if Obama's plan passed—which it won't, because congressional Republicans would never allow that—people like Mitt Romney wouldn't be allowed to have $21 million in a tax-preferred retirement account like an IRA. And this, with some exceptions like small businesses, would end:
If you sell stock for $1 million that you bought for $100,000, you pay capital gains taxes on the $900,000 profit. But if you die, and your kid gets the stock, he or she is excused from paying taxes on the $900,000. For your child, the new starting point in calculating capital gains taxes is the $1 million, so that $900,000 escapes taxation. It’s a tax break that mostly, though not exclusively, benefits the wealthy. According to the Congressional Budget Office, it cost the Treasury about $50 billion in 2013, and 21 percent of the tax benefits went to the top 1 percent.
So if you can afford to hold onto the stock until the end of your life, your kid gets to keep a lot more of the profit than you would have if you'd needed to sell it during your life. But again, congressional Republicans would never exchange that for making it easier for low- and middle-income families to send their kids to college or for expanding child tax credits.
It's really too bad voters didn't get this kind of sharp contrast between the parties before the 2014 elections, but it's never a bad idea to drive this point home. More like this—and the proposal to make community college free for most students—please.