In last night’s State of the Union Address, President Obama outlined a proposal to raise $320 billion in tax revenues over the next decade, while providing $235 billion in new and expanded tax credits and programs aimed at strengthening the middle class.
The administration has indicated that the speech was a preview of the full plan that will be included in the President’s fiscal year 2016 budget, scheduled for release on February 2nd. The plan faces opposition in the Republican-controlled Congress.
The tax professionals at Clark Schaefer Hackett monitor the national conversation on federal revenue sources and strive to keep you in the know on the most relevant information. Below are the highlights of the President’s plan:
Proposed capital gains changes
- Raise the top tax rate on capital gains and dividends to 28 percent, from 23.8 percent. This would be imposed on taxpayers with incomes over $500,000.
- Impose capital-gains taxes on asset transfers at death, ending the “stepped-up basis” provision by treating bequests and gifts other than those made to charitable organizations as realization events.
- Include a $200,000 per couple exemption on capital gains appreciation and $500,000 exemption for homes and property, so that the impact of these capital gains changes would fall mostly to the top 1 percent of Americans.
Proposed fee for financial firms
- Impose a 7 basis point fee on the liabilities of large U.S. financial firms with assets of more than $50 billion, making it more costly for these firms to borrow heavily.
Proposed tax credits and programs
- New $500 second-earner credit, available to families with incomes up to $120,000 with a phase out for families earning between $120,000 and $210,000.
- Tripling of the child care tax credit to $3,000 per child, making the income cutoff $120,000, and eliminating child care flexible spending accounts.
- Expansion of the Earned Income Tax Credit (EITC), including increasing the EITC for childless taxpayers, raising the phaseout level, and making permanent EITC increases that are scheduled to expire after 2017
- Credits for small businesses that offer retirement savings plans, and further reform that includes automatically enrolling workers in IRAs, requiring employers to allow more part-time workers to participate in their retirement plans, and providing a cap of about $3.4 million in an IRA.
- Consolidation of six overlapping education credits into two. This includes making the American opportunity tax credit permanent and folding the lifetime learning credit into it, increasing the refundable portion to $1,500, and making it more available.
Clark Schaefer Hackett will continue to track the progress of the upcoming budget debate and offer strategic advisement to help you position yourself in light of current tax law.