Obama tax plan fires new salvo on income inequality

President Obama’s 2015 State of the Union address will offer details on the White House Robin Hood proposal about raising taxes on the very rich and giving most of America a tax break.

Quite simply, Obama wants a simpler and fairer tax code to help lower- and middle-class families while asking the wealthiest to pay more. The plan would provide a simple tax credit for families with two earners and extend the American Opportunity Tax Credit, the higher-education tax benefit that’s set to expire in 2017, while making it more valuable to low-income students. The plan also would make it easier and automatic for workers to save for retirement.

To pay for these plans, the tax proposal would close the “trust fund loophole” — a situation in which heirs pay no capital gains tax on inherited assets. Obama also wants to raise the top capital gains rate to 28 percent  — the same rate that existed under President Reagan — and impose more fees on the biggest banks. More details about the tax plan will be delivered at the State of the Union address and are available now on a White House website.

The tax proposal comes on the heels of a report on income inequality from Oxfam that says the world’s richest one percent of the population will control half of the world’s wealth by 2016. That’s not a surprise, says Oxfam, an international group of 17 organizations working in nearly 100 countries to fight poverty and injustice. The report also points out that “the most prolific lobbying activities in the U.S. are on budget and tax issues.”

Among the disturbing facts from the report: The wealth of the richest 80 people in the world — with a combined wealth of $1.9 trillion — has surpassed the combined wealth of half the planet. To show how the income gap is growing, that ratio was the richest 85 people a year ago, and the richest 388 people in 2010. And this is while more than 1 billion people in the world live on $1.25 per day.

In 2014, there were more than 1,600 billionaires in the world, and 30 percent of them live in the U.S. Their wealth has come primarily through the financial, insurance, pharmaceutical, and health care sectors. So it’s no surprise that those groups spend the most lobbying dollars on Capitol Hill. The entire Oxfam report is available online.

Of course, Obama’s plan to change the tax structure doesn’t have a chance of passage in a Republican Congress. If Obama is for it, Republicans in Congress will be against it. If Obama offered a bill to declare Christianity the official U.S. religion, many in the GOP would probably embrace Islam. Or atheism. Already, GOP leaders in the House who hold leadership positions on committees that handle tax proposals have shot down Obama’s ideas.

The question really isn’t whether Obama’s tax plan will ever pass — it won’t — or if the GOP will come up with a fair tax plan of its own — it won’t. The bigger question is how the problem of income inequality is sold to the American people and how it’s used in the 2016 presidential campaign.

How will Democrats treat the issue? Sen. Elizabeth Warren (D-Mass.) has become the Democratic point person when talking about income inequality. Sen. Bernie Sanders (I-Vt.) has been talking about the issue for years. Their ideas are being widely embraced, especially by Millennials. Rep. Chris Van Hollen (D-Md.) has introduced a new plan to expand tax credits and boost child-care credits, among other proposals, and pay for it all by raising taxes for those at the top of the income scale. Not that Van Hollen’s plan is going to pass, either, but it’s good to see some solid proposals coming from Democrats.

The real question is whether presumptive Democratic nominee Hillary Clinton will get on board. So far, signs seem to show that she sees the issue as a winner. It’s way too early to tell, but she already has called on businesses to do their part. In a speech last year at the New America Foundation 2014 Conference, she spoke of the need to raise wages and invest in new programs, to “encourage more companies to come off the sidelines and frankly, for some to use some of that cash that is sitting there waiting to be deployed.”

And how will the Republicans treat the issue? They’ve been talking about changing the tax code for years, but those proposals usually end up being some form of trickle-down economics. And before anyone believes the GOP come-to-Jesus moment on economic populism, remember that until this point, what the rest of the world called income inequality, Republicans called “class warfare.”

What is most laughable is that Mitt Romney, the 2012 GOP presidential candidate considering a 2016 run, now wants to make fighting poverty a priority. Mr. “47 percent of Americans are freeloading moochers” now claims that rising income inequality is somehow Obama’s fault. (Gee, maybe income inequality wouldn’t be so bad if the companies taken over by Bain Capital hadn’t closed plants and shipped jobs overseas, putting people out of work.) In the 2012 election, whenever Obama brought up the idea of income inequality as part of the campaign, Mr. Etch-a-Sketch called it a “very envy-oriented, attack-oriented approach.”

Oxfam launched its “Even It Up” campaign in October 2014, calling for governments, institutions, and corporations to tackle extreme inequality. Among Oxfam’s proposals in its new report: make government work for citizens; promote women’s income equality and women’s rights; pay workers a living wage; share the tax burden fairly; and close international tax loopholes. All common-sense ideas that any right-minded candidate can embrace.

What will it take to fight income inequality in the U.S.? As Sen. Warren has said, “Wealth trickles up.”



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