White House Tax Proposals

In his State of the Union address on January 20, 2015, President Obama proposed a number of tax increases that could generate $320 billion in revenue over the next 10 years. He also proposed new and revised tax credits for low income taxpayers that would be paid for by the tax increases.

Most political pundits believe the proposals have little chance of passage since they seem in direct conflict with Republican held beliefs of tax reform, not increased taxes. It’s believed the proposals may promote the topic as a campaign issue in 2016 in a Democratic attempt to alter the Republican controlled Congress.

Although there appears to be little expectation of passage of the proposals, the following is a brief list of some of President Obama’s tax increases:

• Increase in capital gains and dividend maximum tax rates from 20% to 28%
• Repealing the student loan interest deduction
• Eliminating tax-free withdrawals from Section 529 education plans for money contributed after the law is changed (This proposal has been withdrawn.)
• Repealing the step-up in basis for inherited assets
• Requiring an immediate capital gains tax on the appreciation of inherited assets with some exceptions
• Eliminating additional contributions to qualified plans and IRAs once accounts would provide a certain annual income

Some of the incentives proposed for lower-income taxpayers would include:

• A new tax credit up to $500 for households with two wage earners
• Increase the child tax credit to as much $3,000 per child under the age of five
• Double the earned income tax credit for workers without qualifying children
• Improve the American Opportunity Tax Credit up to $2,500 each year over five years and increase the refundable portion to $1,500. Part-time students would be eligible for ½ the above credits
• Employers with more than 10 employees without a 401(k) plan to automatically enroll employees in IRAs.
• Make student loan forgiveness exempt from income

 

We thought you would be interested in these proposals because although not likely to be currently enacted, tax proposals have a way of coming back into legislation at some later point.

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.