First Lady Michelle Obama is looking forward to her husband delivering his sixth State of the Union address. Last night she saw her man sitting down at his desk, reviewing each and every word to make sure his speech tells the most important story: that of the American folks.
For Barack Obama, that is what this address is about. Not politics or partisanship, but the lives the American citizens lead, the challenges they face, and the future they hope to build for themselves and for their children. Every day, he reads those stories in the letters folks send to him from across the country.
Barack sat down to talk about what makes the address so personal for him, and what will make 2015 special.
As the First Lady Michelle Obama has the honour of watching Tuesday’s speech with a few of the inspiring Americans who shared their story with Barack this year,
Anthony Mendez overcame every obstacle put in his way to become the first member of his family to graduate high school.
Carolyn Reed opened her third sub shop in Colorado with help from a federal small business loan — she and her husband now own seven.
Victor Fugate worked hard to bounce back from unemployment, earn his degree, and find a job.
Jason Gibson returned from Afghanistan without either of his legs. Today, he is recovering and his wife just gave birth to a baby girl.
Their grit and dedication represent what’s best about the U.S.A. and while they have made so much progress, they have so much left to do to make sure all Americans have the opportunities they deserve to get ahead.
That’s what Barack Obama will be talking about in his Union of the State.
In the State of the Union speech the president will outline how far the economy has come since the financial crisis, and what further steps he plans to take to boost growth, tackling inequality, which is not just morally wrong but is bad economics and has to be tackled, will again feature as a central theme.
As in the UK, the US tax code favours income generated from rising asset values, such as an increase in share prices, over income generated from work. Americans pay a top rate of 23.8 per cent tax on their investment income — significantly lower than the top rate of tax on income from employment, which now stands at 39.6 per cent.
You can imagine that Obama once again touched a sour limb of the American rich by targeting Wall Street and the wealthy in his State of the Union speech later on, outlining plans to raise more than $300bn by closing one of the biggest loopholes in the US tax system and levying a new fee on the nation’s largest financial institutions.
It looks like Mr Obama will unveil proposals that would pump funds raised from banks and rich families into initiatives likely to be popular with the middle class, such as adding a new tax credit for households where both spouses work and expanding the tax benefits for child care. But the Americans should know that it is not all right having so much inequality in income and assets. In proposing to close the so-called “stepped up basis” loophole on capital gains, a Democratic Party goal for years, Mr Obama is targeting a provision in the US tax code that disproportionately benefits America’s wealthiest families and many of its most successful entrepreneurs. All through Europe we have seen that income derived from capital exceeding income derived from work, has widened inequality up to standards which can not be accepted any more.
The rich, of which only 0.0003 percent of the taxpaying population, earned 12 percent of capital gains benefitting from lower rates, shall naturally object to pay more taxes, because like all people they would not like to give something of their money to others and they shall prefer to have capital gains on assets held until death to be not subject to income tax. The heirs would also not love it to see their starting value shall not any more be “stepped up” to its value on inheritance, rather than its value at the time it was actually purchased.
Can you imagine the difference.
For example, if an individual inherits a portfolio that was bought for $1m but has now grown to $10m, the heir will only pay capital gains tax on the difference between $10m and the amount he or she sells the portfolio for in the future, rather than on the difference between $1m and the future selling price.
By transferring assets this way, families can avoid millions and, in some cases, tens of millions of dollars in capital gains tax. That is why in tax circles, the loophole is frequently referred to as “the angel of death.”
The White House demanded understanding of the rich, having the citizens also to see that it only will affect a few, but that this will help a lot. On Saturday they said that the change, projected to raise as much as $220bn over ten years, would almost exclusively affect the wealthiest 1 per cent of Americans, and that 80 per cent of the impact would fall on the much narrower 0.1 per cent band, defined as those with annual income of more than $2m.
On television last night the president also told he will also propose lifting the top rate of tax on capital gains and dividends to 28 per cent, while introducing protections to prevent middle class families from being hurt by the elimination of the “stepped up” tax break when passing down a relatively modest house or a family-owned business.
Having to face the last two years of his term he is not afraid to enter the lions den full of opponents. For him the lower and middle class are also the bones of the American society whose families are alarmed by growing economic inequality. The politicians in charge shall have to understand it can not be like that having the median wealth of the nation’s most affluent families in 2013 nearly seven times the wealth of middle-income families, the widest gap seen in three decades, and 70 times that of lower-income families, according to a report released last month by Pew Research Center.
This president is not afraid to show the Republicans and all his contenders or rivals, the cards he wants to play out. For him there is no time for secrecy that traditionally surrounds a State of the Union speech. White House officials said the new communications strategy would allow the president to focus on his broader vision for the country on Tuesday, and less on technical policy details. and the country in these circumstances does need a broad vision where the citizens play the most important role.
The Best Way to Watch
No matter your device, WhiteHouse.gov/SOTU is the place to watch President Obama’s State of the Union this Tuesday at 9 p.m. ET.
Stream the address, and follow along with exclusive graphics and charts showing what the announcements mean for you.
Then, be sure to stick around after the speech for an exclusive live video Q&A.
Join us the day after the State of the Union for an online, all-day open house: Ask questions across social media using #AskTheWH and follow along.
The White House is calling it Big Block of Cheese Day, in honour of President Andrew Jackson’s 1837 open house featuring a 1,400-pound block of cheese. (Read more about that here.)
- Obama Will Focus on Wealth Inequality – Not Just Income (theatlantic.com)
The proposal likely to attract the most attention is Obama’s plan to raise the capital-gains tax for Americans earning $500,000 or more from 23.8 to 28 percent. In addition, the president wants to close a loophole allowing Americans to dodge paying taxes on inherited money. These two proposals—alongside a separate plan to tax companies with assets over $50 billion—are expected to raise $320 billion in revenue of the next decade.
- Bernie Sanders Backs President Obama’s Plan To Hike Taxes On The Rich (addictinginfo.org)
- What President Obama’s tax proposals mean for Canada (macleans.ca)
There are already some analyses of the whole tax package, but to me the change to capital-gains taxation is the most interesting. The President’s proposal moves capital gains taxation in the United States directly toward how we’ve done it in Canada for the last 40 years. Here’s a short explanation of what is going on, and how it will influence tax policy discussions in Canada.
Capital gains in most countries are not taxed the same as other income. In Canada, we only include half the gain for taxation, but the half that is included is put in the same income pot alongside earnings, pension income, and other income sources and taxed using our regular tax brackets and rates. In the United States, 100 per cent of realized gains are taxable, but there is a special reduced rate schedule just for capital gains.
- Obama’s tax plan makes overhaul less likely (bangordailynews.com)Obama intends to triple the maximum tax credit for child care to up to $3,000. Republican Sen. Marco Rubio and Mike Lee have a similar proposal to help parents that instead centers on the child tax credit: They would augment the current credit of $1,000 with an additional $2,500 credit, and their credit would all be refundable — those without any tax liability would get a check from the government.Obama’s suggested tax credit for second earners in a household — up to $500 for married couples when both spouses are employed, which would help overcome the hesitancy of lower-earning spouses to work — also echoes Rubio and Lee’s proposal. The improved earned-income tax credit already has won over some Republican leaders, including Rep. Paul Ryan, R-Wisconsin, the new Ways and Means chairman. Even the president’s proposed 28 percent tax rate on investment income, up from 23.8 percent, has Republican roots. It’s the same level as under President Ronald Reagan’s 1986 tax overhaul. Camp wouldn’t have gone that far, but he was willing to tax capital gains — after excluding the first 40 percent — at the same level as ordinary income, which would have been an increase for most of the wealthy.
- Obama’s State of the Union? Tax and spend, here we go (commdiginews.com)The President intends to pay for this program by increasing taxes on the wealthy, noting that the wealthy have “done pretty well” in the last five years. While that is true, it is mostly because the Federal Reserve’s expansive monetary policy. The resulting rock bottom interest rates have caused capital to flow out of debt markets and into equity markets, thereby increasing the demand for stocks and significantly raising stock prices. This, of course, will change once the FED starts to raise interest rates.The real problem is that raising tax rates may not increase tax revenue.
- Obama Proposes $320 Billion Tax Hike for the Top 1 Percent (theepochtimes.com)Much of the revenue would finance education reform and a series of tax relief programs for American families, among them a $3,000 tax credit for each child under 5, a $500 credit for families making under $210,000 annually where both spouses work, and double the earned income tax credit for workers without children.The plan would also expand the American Opportunity Tax Credit that gives $2,500 per year in credits to eligible students over a period of five years.The White House said the new tax burdens would fall almost entirely on the wealthiest “1 percent,” a term popularized by the Occupy Wall Street movement.
The proposed tax hikes follows the president’s repeated references to the issue of economic inequality in the United States, which has grown steadily in the past three decades. The fraction of national wealth held by the top 1 percent is the largest since the 1920s, and the inflation-adjusted median wage has fallen 4 percent from 1970 to 2010.