(Reuters) - Taxes would rise for high-earning investors, large banks and inherited wealth under a plan to be outlined by President Barack Obama in his State of the Union speech on Tuesday.
The following are details of the proposals:
Obama wants to raise the top capital gains and dividends tax rate to 28 percent, for couples earning more than about $500,000 a year, from its present level of 23.8 percent. He has already raised this rate from 15 percent.
Despite this, the United States still taxes unearned income from investing lower than wage income from working.
The capital gains tax was nearly 40 percent in the 1970s. Democratic President Jimmy Carter cut it to 28 percent. Republican President Ronald Reagan cut it to 20 percent, then raised it back to 28 percent in his landmark 1986 tax bill, the last time the tax code was comprehensively overhauled.
Obama is proposing a new fee for the largest 100 U.S. financial firms, which include Wall Street banks and other groups with assets exceeding $50 billion.
First floated in 2010 as a “bank tax”, the proposal would impose a 7-basis-point fee on the firms’ liabilities to discourage them from taking on too much debt.
Republican Representative Dave Camp, who retired Jan. 3 after chairing the House of Representatives’ tax committee, had a bank tax in his tax reform plan. That plan went nowhere in Congress. Camp’s tax would have applied to far fewer firms.
A loophole in the tax code known as the “stepped-up basis” rule lets investors pass on assets to their children without paying the full tax on the capital gains made on those assets during the investors’ lives.
The proposal would make capital gains tax due for couples upon the death of both spouses, with exemptions for small, family businesses; for bequeathing up to $200,000 in capital gains; for up to $500,000 of the value of a home; and for personal property, such as clothing, furniture and heirlooms.
Compiled by Kevin Drawbaugh; Editing by Grant McCool