State of Union: Obama Asks for Tax Reform Today and Looks to Our Tax Code to Keep American Dream Alive

Tonight President Barack Obama offered to sign Tax Reform immediately in his fourth State of the Union Address, declaring that 2012 objectives for the U.S. should focus on restoring the American dream by giving everyone a fair shot, everyone doing their fair share, and everyone playing by the same rules.

Framing much of the speech were taxes.  At the forefront of his message, the President highlighted the increase in income for the top earners and difficulties faced by the “hardworking Americans” as costs of goods increase before turning the focus to businesses.

This is the first of our three-part analysis of President Obama’s 2012 State of the Union Address, which provides a general overview of the portions of the speech concerning taxes.  The second part will take a deeper look at the corporate and international tax reform changes proposed by the President, and the third will cover Obama’s so called “Buffett rule.”

Corporate/International Tax Reform

“We should start with our tax code,” stated Obama in addressing his plans to stimulate the economy, proposing a number of tax changes to encourage companies to keep jobs and profits in the United States.

The main point of Obama’s corporate tax reform focused on encouraging companies to stay in the United States.  To do this, the President proposed removal of deductions available for outsourcing jobs, imposition of a minimum tax on multinational companies, and offering deductions to American manufacturers for producing goods.  Obama suggests that all revenue generated from these proposals should be spent encouraging other companies to bring jobs back to the U.S.

“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.”

Employment Tax

“Right now, our most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile. People cannot afford losing $40 out of each paycheck this year,” Obama warned.

Obama urged Congress to quickly pass a bill that would extend the 2% payroll tax holiday for workers.  Before the New Year, Congress extended the payroll tax cut through February 2012.

Clean Energy Tax

“End the taxpayer giveaways to oil industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising,” stated Obama.

To promote clean energy, Obama proposed tax credits for clean energy development such as wind power, solar power, and the battery industry.

Small Businesses and Entrepreneurs

Obama pressed Congress to expand tax relief for small businesses without any specific guidelines.

Education

“When kids do graduate, the most daunting challenge can be the cost of college. Americans owe more in tuition debt than credit card debt,” said Obama addressing the problems facing many young Americans.

Obama asked for the extension of tuition tax credit for middle-class families.  This likely refers to the American Opportunity Credit set to expire in 2012 that increased the credit available under the Hope Scholarship Credit.  The American Opportunity Credit is currently available for up to $2,500.

Individual Tax Rates

“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% in taxes.”

This issue addressed recent complaints over Republican candidate, Mitch Romney’s, tax returns and the proper taxation of millionaires.  Romney recently revealed that he paid an effective rate of 15%, which was revealed earlier today to be closer to 14%.  Warren Buffet publicly announced that Romney’s effective tax rate demonstrated unfairness with our tax system.  With Warren Buffett’s secretary sitting in the First Lady’s Box, the President proposes the “Buffett Rule.”

The Buffett rule proposed by Obama would require anyone earning more than $1 million a year to pay no less than 30% in taxes.

Veterans

Obama referenced the military in numerous instances during the speech.  With regard to taxes, Obama called on Congress to create new credits for businesses that hire veterans.  Currently, the Work Opportunity Tax Credit is available for businesses that hire unemployed veterans through the end of 2012.  Employers are eligible for a credit of $2,400 to $9,600.

The Republican Response

The Republican response was given by Governor Mitch Daniels of Indiana.

“It’s absolutely so that everyone should contribute to our national recovery, including, of course, the most affluent among us. There are smart ways and dumb ways to do this: the dumb way is to raise rates in a broken, grossly complex tax system,” stated Daniels.  Instead, Daniels proposes eliminating tax preferences for the wealthy.

With tax reform on the table, TaxTV’s prediction is that the tax discussion is just beginning to heat up for 2012.

Look for part two tomorrow, providing further analysis of President Obama’s proposals for encouraging companies to stay and produce in the United States.

Part two – Obama Urges Corporate Tax Reform To Keep Businesses in the United States

Part three – Obama’s Buffett Rule