Obama's Tax Plan

President will seek big changes in education tax credits, and will propose new taxes on the wealthy and on financial institutions to pay for free community college tuition.


January 17, 2015

WASHINGTON -- The White House Saturday evening announced a series of tax proposals that would add taxes for the wealthy and financial institutions, simplify education tax credits and pay for his plan for free community college education.

Many details were not spelled out and are expected Tuesday in the State of the Union address. And Republican Congressional leaders are certain to oppose the plans. But just over a week after the president proposed a plan to work with states to make community college education free for two years of study, he's back with another set of proposals focused on paying for college (as well an answer to those who said he hadn't outlined a way to pay for his community college plan).

Among the proposals announced Saturday:

  • Raising taxes on capital gains in ways the White House says will affect only the wealthiest 1 percent of Americans.
  • Imposing new fees on financial institutions that borrow heavily.
  • Using the billions raised by the new taxes to pay for the community college program (estimated to cost $60 billion over the next decade).
  • Consolidating a series of education tax breaks into a single program to be called (as a major program is called now) the American Opportunity Tax Credit, and making the tax credit, currently due to expire in 2017, permanent.
  • Expanding eligibility for the tax credit to those enrolled less than half time.
  • Exempting Pell Grants from taxation (currently only the portion used for educational expenses is exempt).
  • Exempting Pell Grants from the calculations of eligibility for the American Opportunity Tax Credit.

The White House estimated that the combined impact of the tax benefit proposals would provide students with $2,500 in educational aid a year for up to five years; the current American Opportunity Tax Credit is available for four years. The White House also projected -- without details -- that its plans would cut taxes for 8.5 million families and students and simplify taxes for the 25 million students and families who claim education tax credits.

The information released by the White House Saturday night stressed ways that the plan was consistent with measures passed by the Republican controlled House of Representatives last year. At the same time, the White House material sought to set up its tax proposals as favoring the working class and middle class, as opposed to wealthy Americans. The White House is portraying its effort to raise capital gains taxes as a proposal to close "the trust fund loophole."

Sara Goldrick-Rab, professor of education policy studies and sociology at the University of Wisconsin at Madison, who has in the past written that federal tax policies don't do enough to help low-income students and families, said via email that her first reaction to the plan was "Wow!" She said that "this is a very smart proposal full of evidence-based solutions. I'm really happy with the [tax credit] reforms in particular." (The plan would increase the refundable portion of the education tax credit, which makes it of greater help to low-income individuals.)

The White House also Saturday announced trips by President Obama this week to two college campuses where he is expected to pitch these ideas in heavily Republican states. On Wednesday, the president will be at Boise State University and on Thursday he will be at the University of Kansas.




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