President Barack Obama called for millionaires to shoulder a greater share of taxes, but also agreed to lower corporate taxes for companies that hire in the U.S., during his State of the Union address on Tuesday night.
Obama urged Congress to finish the job of extending the payroll tax cut for the rest of the year to prevent an average tax hike of $40 per paycheck for the middle class. A congressional joint committee began meeting on Tuesday to do just that. But he also called for broader tax reforms, including an end to the 2001 and 2003 tax cuts for those earning more than $250,000 a year. He argued that the Tax Code should be reformed to abide by the so-called “Buffett rule.”
“Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans,” he said. “Right now, because of loopholes and shelters in the Tax Code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary. Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else —like education and medical research; a strong military and care for our veterans? Because if we’re serious about paying down our debt, we can’t do both.”
Obama pressed an economic fairness theme that he is likely to continue into campagn season. “The American people know what the right choice is. So do I,” he said. “As I told the Speaker this summer, I’m prepared to make more reforms that rein in the long-term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors. But in return, we need to change our Tax Code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes. Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes. And my Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions. On the other hand, if you make under $250,000 a year, like 98 percent of American families, your taxes shouldn’t go up. You’re the ones struggling with rising costs and stagnant wages. You’re the ones who need relief.”
Obama addressed a charge made by several of the Republican candidates for his job. “Now, you can call this class warfare all you want,” he said. “But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense. We don’t begrudge financial success in this country. We admire it. When Americans talk about folks like me paying my fair share of taxes, it’s not because they envy the rich. It’s because they understand that when I get tax breaks I don’t need and the country can’t afford, it either adds to the deficit, or somebody else has to make up the difference – like a senior on a fixed income; or a student trying to get through school; or a family trying to make ends meet. That’s not right. Americans know it’s not right. They know that this generation’s success is only possible because past generations felt a responsibility to each other, and to their country’s future, and they know our way of life will only endure if we feel that same sense of shared responsibility. That’s how we’ll reduce our deficit. That’s an America built to last.”
In the area of corporate tax reform, Obama said that tax breaks should be geared toward encouraging more companies to bring jobs back to the U.S. from overseas. “We should start with our Tax Code,” he said. “Right now, companies get tax breaks for moving jobs and profits overseas. Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it. So let’s change it. First, if you’re a business that wants to outsource jobs, you shouldn’t get a tax deduction for doing it. That money should be used to cover moving expenses for companies like Master Lock that decide to bring jobs home. Second, no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas. From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here.”
Obama said that U.S. companies should be able to get larger tax cuts from the federal government. “If you’re an American manufacturer, you should get a bigger tax cut,” he said. “If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here. And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers. My message is simple. It’s time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America. Send me these tax reforms, and I’ll sign them right away.”
Obama also called for ending tax breaks to big oil companies and instead providing them to clean energy producers.
“We have subsidized oil companies for a century. That’s long enough,” he said. “It’s time to end the taxpayer giveaways to an industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising. Pass clean energy tax credits and create these jobs.”
Obama also called for tax breaks for small businesses. “Most new jobs are created in start-ups and small businesses,” he noted. “So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow. Expand tax relief to small businesses that are raising wages and creating good jobs. Both parties agree on these ideas. So put them in a bill, and get it on my desk this year.”
He also said he would establish a Financial Crimes Unit of investigators to crack down on large-scale financial fraud, along with a special unit to investigate mortgage fraud. “Tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis,” said Obama. “This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”
In the Republican response, Indiana Governor Mitch Daniels also called for tax reform, emphasizing “a dramatically simpler tax system of fewer loopholes and lower rates.”
“It’s absolutely so that everyone should contribute to our national recovery, including of course the most affluent among us,” he said. “There are smart ways and dumb ways to do this: the dumb way is to raise rates in a broken, grossly complex tax system, choking off growth without bringing in the revenues we need to meet our debts. The better course is to stop sending the wealthy benefits they do not need, and stop providing them so many tax preferences that distort our economy and do little or nothing to foster growth. It’s not fair and it’s not true for the President to attack Republicans in Congress as obstacles on these questions. They and they alone have passed bills to reduce borrowing, reform entitlements, and encourage new job creation, only to be shot down time and time again by the President and his Democratic Senate allies.”