Obama Tax Agenda Widens Partisan Gulf As He Seeks Redistribution

Democrats are abandoning what was once an area of promising bipartisan agreement on tax policy: lowering individual tax rates and broadening the base.

The party, led by President Barack Obama, is instead increasingly viewing tax policy as a means to other ends -- a way to finance breaks for education and child care and to fight middle-class wage stagnation. That puts them at odds with Republicans, who champion lower rates and a simpler tax code as the path to economic growth.

That widening gulf -- amplified in Obama’s State of the Union speech Tuesday night -- makes it harder to see a bipartisan approach to revamping the individual tax system while he’s in office. As the two parties develop their agendas for 2016, they’re not even speaking the same language on tax policy for individuals.

Obama’s latest proposals would leave ordinary income-tax rates untouched for top earners and narrow the base for middle-income families with children. That continues the president’s shift away from the approach that propelled the last major tax change in 1986 and provided the framework for failed bipartisan proposals from 2010 to 2014.

“The president is changing the tax debate and that’s what matters,” said Senator Sherrod Brown, an Ohio Democrat who says he supports Obama’s goal of focusing on the middle class. “He’s clearly changed the debate so there’s revenues from places we ought to be getting revenue from and tax relief for people who ought to be getting tax relief.”

New Breaks

The White House announced proposals on Jan. 17 that would raise $320 billion over a decade and use most of the proceeds for new tax breaks for two-earner couples, child care and education.

The plan would raise the top capital gains rate to 28 percent from 23.8 percent and impose a new tax on the largest financial institutions, in addition to other tax increases for the highest earners that Obama has sought for several years.

His plan would also repeal a rule that lets people pass along assets to heirs without paying capital gains taxes on the growth in value.

Obama’s proposal counts on revenue from limiting tax breaks for 529 college savings accounts and flexible spending accounts for child care. In mid-January, the White House released a list of proposed tax changes that included removing the tax-exempt status of withdrawals from future contributions to 529 college savings accounts. 

“Let’s close the loopholes that lead to inequality by allowing the top 1 percent to avoid paying taxes on their accumulated wealth,” Obama said in his address at the Capitol Tuesday night. “We can use that money to help more families pay for child care and send their kids to college.”