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Expect Taxes, Economy To Top Obama's State Of The Union

ARUN RATH, HOST:

Now, to Washington. On Tuesday night, President Obama will use the State of the Union address to lay out a series of tax changes, raising taxes on investment income, inherited money and big financial firms. The president will say that would enable Congress to lower some other taxes and pay for other programs as well. Joining us to talk about what to expect is NPR senior editor and correspondent Ron Elving. And, Ron, this is the first State of the Union address since the Republicans took control of the Senate. Is that going to make a big difference in the atmosphere?

RON ELVING: You know, it ought to make some. Those cheering sections that you see on television - Republicans on one side, Democrats on the other - the Republicans are going to have more voices in their chorus. They're going to have nine more senators, more than a dozen additional in the House, but, of course, most of that cheering you hear will probably not be coming from Republicans.

RATH: Well, we've been hearing about some of what the president is going to propose, and, surely, some of that is going to get some pushback.

ELVING: Yeah, it already has. And that's probably very much part of the president's plan. But, to begin, the president is going to talk about how the economy's doing better - 58 straight months of job growth in the private sector, unemployment rate down to just 5.6 percent. But then he's going to talk about how the middle class and, especially, working families are not seeing as much benefit from that improvement as the wealthy are.

RATH: It seems pretty uncontroversial, not much argument about that.

ELVING: Not about the existence of some inequality, but there's lots of argument about the causes and the cures. So the president's going to propose a number of ideas, such as two years of free tuition at community colleges. That alone would cost an estimated $60 billion over 10 years. And then the president's going to propose a big increase in the current tax credit for children of middle-class families - up from a thousand to $3,000 per child. And then there would also be tax breaks for two-income families and for people saving for retirement.

RATH: That sounds like that would be popular, but where does the money come from?

ELVING: Yes, well, there's the rub. The president will propose raising taxes for investment income, capital gains, where the top rate would go from about 24 percent to 28 percent on the very highest incomes. And he'd also go after what we call trust funds, where assets can appreciate tax-free until they're distributed. And, of course, that's been a great benefit for families of means, passing large amounts of money between generations.

RATH: And then there's a fee on the largest investment banks, as well, that's supposed to bring in billions over 10 years.

ELVING: Yes, that's right, continuing the theme. And overall, the president's plan is supposed to be revenue positive for the Treasury.

RATH: But, Ron, how can this president get that plan? You know, things like raising taxes on investments approved by a Republican Congress. Isn't that just dead on arrival?

ELVING: It's surely not going to get passed by this Congress in anything like the form that the president is proposing, but it isn't necessarily dead on arrival as a topic of discussion. The Republicans want to do something for working families, too. They're just going to disagree about what. And this makes the issue of, if you will, income inequality and the distribution of the benefits of the improving economy front and center as the new Congress sits down to business.

RATH: NPR senior editor and correspondent Ron Elving. Ron, thank you.

ELVING: Thank you, Arun. Transcript provided by NPR, Copyright NPR.