Obama’s Budget Strategy Taxes the Rich to Give to the Middle Class
Policy + Politics

Obama’s Budget Strategy Taxes the Rich to Give to the Middle Class

Olivier Douliery-Pool/Getty Images

With one eye on his legacy and another on his party’s prospects in 2016, President Obama has set the stage for his State of the Union speech on Tuesday with a flurry of new proposals largely tailored to the middle class.

After two weeks of touting the economic recovery across the country and honing his themes for before he enters lame duck status, the president will be calling on the new Republican Congress to open up the nation’s wallet even wider for a number of novel economic and educational initiatives – many of which have a strong appeal to the middle class.

Related: How Obama Is Already Stumping for the Dems in 2016


Obama seeks to open the federal checkbook at a time when the middle class has seen stagnant wage growth. That’s reflected in a low national birth rate, more college dropouts, and other troubling signs. But the impact of these new costs on what CBO says will be a growing deficit in a few years, could put the country deeper in debt.

The centerpiece will be  an array of middle class tax cuts over the coming decade worth about $175 billion  – including a $500 credit for families in which both spouses work and increased child care. Those tax breaks would be offset by tax increases on the wealthiest taxpayers and the largest financial firms.

The tax increases would include a boost in the top capital gains rate to 28 percent from 23.8 percent for couples with incomes above $500,000 a year and elimination of a substantial loophole governing inherited assets, according to a fact sheet released by the White House. The increased tax revenue over the coming decade would total $320 billion, and would go to cover the middle-class tax breaks as well as major education initiatives. 

The president’s previous  proposals include:

  • Free college tuition at two-year community colleges for millions of students
  • Funding to support paid family and medical leave programs
  • Technical job training for the unemployed or underemployed
  • Enhanced broadband access for rural communities
  • A one-half-percentage point reduction in the Federal Housing Administration fee for mortgage loan protection to help spur home sales
  • A plan for universal pre-school.   

And let’s not forget the president’s most controversial executive action—protecting up to 5 million illegal immigrants from deportation.

All of these proposals carry a serious price tag. Bloomberg claims the president will ask Congress for a 7 percent increase in fiscal 2016, or $68 billion more, which includes $34 billion for defense and an equal amount for domestic spending. That would virtually wipe out the 2010 Budget Control Act, hike the budget to about $4 trillion, and set up a nasty fight with the Republican congress.

With time running out on his second term, many of Obama’s proposals and requests are likely to go by the boards. Moreover, many State of the Union promises – like Obama’s 2011 prediction of high speed rail covering 80 percent of the country by 2035 – often are more wishful than real.

It is likely that the president’s new agenda has been carefully poll-tested and that some of the proposals – such as family leave – are popular among Republicans as well as Democrats.

Related: White House Rolls Out State of the Union ‘Spoilers’

Obama and former Secretary of State Hillary Clinton, the presumed 2016 Democratic presidential nominee, both have come under attack by liberals for not doing and saying more about the plight of middle class Americans who have been largely left behind by the recovery. Sen. Elizabeth Warren (D-MA), a liberal icon, gave a speech recently urging the president to pay more attention to the plight of the middle class in his speeches than to crow about the economic recovery.

“I have to assume that the White House is realistic enough to know that they’re not going to get proposals of that sort through the House and the Senate – certainly not the House,” said William Galston, a government expert at the Brookings Institution and a former policy adviser to Democratic President Bill Clinton.

“I think the president is trying to stay on offense as best he can… and trying to expand the discussion as the presidential election to succeed him heats up,” Galston said.

Related: The 25 House Conservatives Who Could Kill Boehner’s Agenda 

Jared Bernstein, an economist and former adviser to Vice President Joe Biden, said that Obama is fashioning a new economic agenda that focuses more on the middle class while retaining other measures like an increased minimum wage, a refundable tax credit, universal pre-kindergarten programs that help low income Americans as well.

“Between minimum wage and overtime and community college and so on, he’s really trying to target those on the wrong side of the inequality divide, and that’s a lot of people.”

Sen. Bernie Sanders of Vermont, a liberal independent and a senior member of the Budget Committee, said that the next budget must address the grim reality for many middle-class Americans. While the wealthy and large corporations are doing quite well, he said, “Millions of men and women in this country are working longer hours for lower wages than they did years ago.”

While the administration has been largely silent on the cost of his proposals – and how they will be financed – it’s safe to say Obama would like to add tens of billions of dollars in domestic spending to the fiscal 2016 budget he will unveil in early February.

Related: Next on Obama’s Bucket List—Fix Broadband

The proposal to open up the community college system to all comers who qualify would cost an estimated $60 billion over the coming decade, according to Bloomberg. A new “American Technical Training Fund” targeted to middle-class jobs would spend $3,800 per student up to nine million enrollees.

Obama is expected to propose a new initiative that encourages Congress, states and municipalities to pass legislation to allow all U.S. workers to receive seven paid sick days a year. That proposal entails creating a $2 billion fund to help states foot the bill for family leave programs. The president will also tout legislation that would give all federal workers six days of paid family leave.

The president has also announced a sweeping plan to address cyber threats in the wake of the Sony hack and breaches to some of the Pentagon’s social media accounts. His plan includes increasing penalties for cyber crimes as well as forming a partnership with the government and private sector to detect any threats from hackers. Under the proposal, the government would give immunity to companies that share information about potential threats.

Overall discretionary spending -- – that is everything but Medicare, Medicaid,  Social Security and interest on the federal debt – would total about $1.08 trillion in fiscal 2016, according to Bloomberg. It is unclear whether the administration will propose offsetting cuts for the additional discretionary spending, include tax increases, or simply add it to the deficit.

Top Reads From The Fiscal Times