Obama Calls for Higher Taxes on Wealthy

By Catherine Dodge and Kate Andersen Brower - Jan 25, 2012 1:07 PM GMT+0700

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Jan. 25 (Bloomberg) -- U.S. Senator Rob Portman, a Republican from Ohio, David Stockman, former director of the Office of Management and Budget in the Reagan administration, John Podesta, a former Democratic White House chief of staff, former Republican Senator John Sununu of New Hampshire, now a Bloomberg contributing editor, and Al Hunt, executive editor at Bloomberg News, talk about President Obama's State of the Union address. Speaking with Bloomberg's Margaret Brennan they also discuss the Republican Party's response from Indiana Governor Mitch Daniels. (Hunt is a Bloomberg View columnist. The opinions expressed are his own. Source: Bloomberg)

President Barack Obama, offering an election-year prescription to spur the economy, said the wealthiest Americans should pay more taxes in the name of fairness, to bring down the deficit and ensure those trying to make ends meet don’t have to “make up the difference.”

In his State of the Union address last night, Obama called on Congress to embrace a tax plan named for billionaire Warren Buffett that would require those making $1 million or more pay at least 30 percent in taxes. With congressional gridlock heightened by the 2012 election, there is little chance the proposal will pass.

“You can call this class warfare all you want,” Obama said in a nationally televised speech before a joint session of Congress. “But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.”

The president’s 65-minute address was directed at both voters and Congress. The populist themes -- tax fairness, help for homeowners, cracking down on U.S. financial crimes and unfair trade practices in China and investigating the lending practices that preceded the housing crisis -- are those he will be repeating as he campaigns for a second term.

He invoked the teamwork and selflessness of the U.S. armed forces to urge lawmakers toward agreement on changing the tax code for individuals and corporations, promoting energy development and improving job training and education. Still, he is unlikely to get any major legislation through Congress before the November election, which will also decide control of the House and Senate.

Spending Constraints

He is also constrained on spending for proposals such as infrastructure projects by efforts to contain the national debt. Last year’s deficit of $1.3 trillion was third-highest as a share of the economy since 1945.

In the Republican response, Indiana Governor Mitch Daniels, who last year decided against a presidential run, said Democratic “extremism” has stifled domestic energy development and job growth.

“No feature of the Obama presidency has been sadder than its constant efforts to divide us, to curry favor with some Americans by castigating others,” Daniels said.

Former U.S. House Speaker Newt Gingrich, who is vying with former Massachusetts Governor Mitt Romney for the lead in the Republican race, said in an e-mailed statement that Obama “described his conviction that his big government is built to last and should be paid for with higher taxes.”

Battleground States

Obama takes his case to voters today, beginning a three-day trip to election battleground states where he will talk about his initiatives on manufacturing, energy and education. With the presidential campaign under way, Obama is drawing contrasts with the Republican presidential candidates. He is also highlighting a willingness to confront congressional Republicans who have stalled his agenda and seek to overturn tougher regulation of Wall Street.

While saying he “will work with anyone in this chamber” to accelerate the economic recovery, “I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place.”

Some Republicans said they found things to like in Obama’s address. Representative Jeff Flake of Arizona said he supports Obama’s call for additional power to consolidate federal agencies.

“We ought to see what we can give him and if he’s willing to use it to streamline government, to make it more efficient, to downsize, then I’m all for it,” Flake said.

Common Ground

Senator Rob Portman, an Ohio Republican, said there are “four or five things” to like in the speech, including calling for an overhaul of the corporate tax code and tougher enforcement of international trade rules.

Obama’s call for a minimum tax for million-dollar earners drew opposition. Portman said that, while he agrees the tax code should be fair, “It’s not about taxing wealthy people.”

Representative Jeb Hensarling, a Texas Republican, rejected the proposal. “We’re going to increase taxes on people in this economy?” he asked.

Obama argued that making sure that millionaires pay at least the same percentage in taxes as middle-income Americans is part of making sure “everyone gets a fair shot, and everyone does their fair share.”

“Because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households,” Obama said. “Right now, Warren Buffett pays a lower tax rate than his secretary.”

Buffett Rule

The so-called Buffett rule was inspired by a New York Times op-ed essay in August in which Buffett said that in 2010 he paid a lower tax rate -- 17.4 percent -- than “any of the other 20 people in our office.”

Buffett’s secretary, Debbie Bosanek, looked on from first lady Michelle Obama’s box in the House gallery where she was an invited guest for the address.

“This is all gamesmanship, but it was very well played,” said Charlie Cook, publisher of the nonpartisan Cook Political Report in Washington. “Having Warren Buffett’s secretary sitting there, it did force you to think about it for a second. This is a big and complicated debate, and it won’t be settled any time soon.”

Tax fairness has become an election-year issue and Obama is seeking a contrast to his challengers. Romney yesterday released his tax returns and they showed he earned $21.6 million in 2010 and paid 13.9 percent in taxes.

The former private-equity executive earned more than half of his income from capital gains and dividends, which are taxed at a top rate of 15 percent, rather than the 35 percent top rate for ordinary income.

Bipartisan Seating

Even with the partisan division in Congress, some lawmakers in the House chamber continued their recently adopted practice of bipartisan seating to listen to the president’s speech.

In an effort to keep manufacturing jobs in the U.S., Obama proposed ending tax breaks for companies that move their operations overseas. He said a tax credit should be created for companies that close operations abroad and bring jobs back home.

“Every multinational company should have to pay a basic minimum tax,” Obama said. “And every penny should go towards lowering taxes for companies that choose to stay here and hire here in America.”

Obama revisited an idea he presented in September to improve the nation’s infrastructure, except this time he would use half of the savings from winding down the wars in Iraq and Afghanistan to pay for it. The other half, he said, would be used to pay down the deficit.

Job Training

Obama also talked about education and job training to make Americans more competitive and help reduce unemployment. Among his proposals is a partnership between community colleges and businesses to train and place 2 million workers.

To promote U.S. energy independence, Obama directed the government to promote development of natural gas, which he said will support more than 600,000 jobs by the end of the decade. He said the administration will create new rules for safe shale gas development and drilling practices.

The president bookended his remarks by referring to the May raid that killed al-Qaeda leader Osama bin Laden, a victory that has helped Obama mute attacks from his opponents on national security.

“For the first time in two decades, Osama bin Laden is not a threat to this country,” he said within the first two minutes of the address, prompting a standing ovation.

Obama closed the address by referring to the day when his administration’s top officials, including former Secretary of Defense Robert Gates, who served in former Republican President George W. Bush’s administration, and Secretary of State Hillary Clinton, who ran against Obama for the 2008 nomination, huddled in the White House Situation Room as the Navy SEAL team conducted the raid that killed bin Laden.

“All that mattered that day was the mission,” Obama said. “No one thought about politics.”

To contact the reporters on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net; Kate Andersen Brower in Washington at kandersen7@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net