GOP: Obama tax plan imperils reform push

President Obama’s decision to pitch tax changes for individuals in his State of the Union address has only complicated the chances for tax reform. 

Lawmakers and lobbyists were already skeptical that the tax code could be overhauled in the next two years when Obama was only focusing on revamping the tax system for businesses, an area where the two parties share more common ground.

{mosads}Now that Obama has floated raising capital gains taxes on the wealthy and expanding tax incentives for the middle class, Republicans insist those proposals show that the president isn’t serious about tax reform.

“You mean his tax increase?” Senate Majority Whip John Cornyn (R-Texas) said when asked about Obama’s proposal. “We ought to make the tax code simpler, fairer and flatter, and he’s doing the opposite.”

But Democrats counter that the president is simply engaging in the sort of talk that Republicans have been wanting: focused on ordinary households and small businesses, as well as corporations.

“I think that’s where most people, certainly working families, feel more comfortable — to believe that there could be some help on the way,” Senate Minority Whip Dick Durbin (D-Ill.) told reporters on Tuesday. 

The president is making the new tax proposals as top officials from both parties — along with 2012 GOP presidential nominee Mitt Romney — have been talking more and more about how Washington can help the middle class. 

Both the economy and the job market showed impressive gains for much of 2014, but polls show that many middle-class voters remain deeply concerned about their own economic security. 

That’s led an increasing number of congressional leaders and lobbyists to say it would be difficult to revamp the tax code in a way that would help the largest companies more than individuals and smaller businesses.  

“I can’t see any political solution that would lend itself to corporate tax reform that doesn’t address the pass-through side,” said Jade West of the National Association of Wholesaler-Distributors, a former GOP aide on Capitol Hill. The term “pass-through” refers to methods of reporting business income though an individual’s tax return. 

The problem is that, as the president’s proposed $320 billion in new taxes on the rich show, the two parties remain divided over how to proceed on taxes for individuals.

Congressional aides, meanwhile, have said the new tax ideas show how little the two parties trust one another on tax reform. GOP staffers have said that the president has yet to follow through on his vows to work with them, something they believe is needed for tax reform to have any chance. 

But Democratic aides say they’ve seen no reason to believe Republicans would be willing to compromise on tax issues, so it made sense for Obama to make a broader case for Democratic priorities.

“I think we can talk about corporate tax reform and also problems within individual taxation, especially when you need to look at unmet needs in this country,” said Rep. Sandy Levin (Mich.), the top Democrat on the House Ways and Means Committee.

Obama hasn’t said that he no longer wants to work with Republicans on a business-centered tax reform plan, an idea that both parties have said could help raise some needed funds for infrastructure improvements. 

Instead, administration officials have said that the new tax plan is the best way to help the middle class get ahead.

But the proposals also illustrate how much Democrats believe in a populist economic message that has polled well with voters ahead of the 2016 elections.

Obama’s new plan includes raising the top capital gains rate to 28 percent, where it stood after the 1986 tax overhaul but almost double the rate when he took office. 

He is also seeking to close what the White House dubs the “trust fund loophole,” which would impose new taxes on stock or other assets passed down after death and impose a new tax on the nation’s largest banks. 

Those hikes would help pay for expanded tax incentives for middle- and working-class people and other priorities, including Obama’s plan for free community college.  

Top lawmakers in both parties say that any revamp should make the tax code fairer.

But for Republicans like Senate Finance Committee Chairman Orrin Hatch (Utah), that means bringing down rates for individuals and getting rid of a host of tax breaks. 

GOP lawmakers have accused Obama and Democrats of dipping back into class warfare mode, after the “fiscal cliff” debate that consumed Washington following the president’s reelection. That shows, Republicans say, that the president hasn’t internalized the message from the GOP’s victories at the polls last year.

“Comprehensive tax reform is an area we might actually be able to make some progress on, but another income redistribution effort, another tax increase obviously is not what we had in mind,” Senate Majority Leader Mitch McConnell (R-Ky.) told reporters on Tuesday afternoon. 

Democrats, on the other hand, say fairness means ensuring that the wealthy pay their fair share. Party leaders have also shown little interest in reducing tax rates for people earning the most income, a big priority for Republicans.

Still, top tax writers in both parties, including Paul Ryan (R-Wis.), House Ways and Means Committee chairman, say they’re far from ready to throw in the towel on tax reform.

“I hope by increasing the attention to tax issues, it will really increase the interest in tax reform,” Levin said.