Last night the President delivered his second to last State of the Union speech, and his first address to Congress since Republicans captured both the House and the Senate. The President made clear at the outset that when it comes to headline issues such as the Affordable Health Act, Immigration, and Dodd/Frank financial services regulation he will not hesitate to veto bills that rollback his policies. He also outlined proposals ranging from paid sick leave for workers to free education at community colleges that have little chance of passing the new Republican Congress. However, generally he strove to make his proposals with a less partisan tone.
On the important issue of tax policy the White House outlined the President’s proposal before the speech, and in the speech the President referred to them as issues of fairness, directed at helping the middle class; but didn’t outline the specific ideas. The While House had announced that the President would ask Congress to approve tax proposals to raise revenue from wealthy Americans and the largest banks. The President will propose to eliminate the “step-up” in cost basis for capital gains paid on inherited portfolio holdings, increasing to 28% tax on capital gains, and a new tax on bank liabilities. This was a disappointment to those who had hoped for a more conciliatory approach on tax policy, especially aimed at lowering the corporate tax.
Republicans called the tax increase proposals non-starters. Republicans believe that they have already compromised on capital gains tax when they allowed the rate to rise from the 15% Bush rate, to the current 20% two years ago. However, on the issue of corporate tax there is a glimmer of hope for compromise as many Republicans could support the closing of some corporate loopholes when combined with a lower corporate tax rate. Republicans also want to lower the personal tax rate that is paid by individuals who own small businesses and don’t incorporate.
Trade was the one area of the speech where the President clearly reached out to Republicans. Specifically he alluded to the ongoing talks with trading partners on the Pacific Rim to conclude negotiations on the Trans Pacific Partnership, TPP. TPP negotiations started under President Bush, and have continued under President Obama. The House and Senate Republican leaders have singled out trade agreements as an area where they and the White House could find common ground. As part of a trade deal Congress will need to pass so-called Fast Track legislation, formally titled Trade Promotion Authority (TPA), which is the legislative vehicle used to clear trade negations through Congress. The President asked Congress to give him TPA, and then use the authority to submit the TPP and perhaps other treaties once negotiations are finalized. In his speech he recognized that this is a tougher sell to his fellow Democrats than Republicans pointing to the need to open foreign markets to US goods and services.
In the wake of the cyber attack on Sony, cyber security is quickly emerging as a potential area for bipartisan cooperation and the President made the pitch for legislation in the speech.
With the expiration this summer of the patch that allowed funding to continue for the Highway Trust Fund, the President singled out infrastructure as an area where bipartisan compromise is possible. As the President pointed out in his speech the disagreement has not been whether or not to build America’s roads, bridges, and cyber highways; but how to fund it and that will be the focus of discussion during 2015.
Tom Block is a public policy consultant who had a 21-year career with JP Morgan Chase where he served as head of government relations in New York City and created a Washington research product. He also created the bank’s EU Government Relations program and developed a new position as U.S. Government Policy Strategist focusing on how U.S. government policy impacts capital markets. He has an extensive government and banking background, has worked on political campaigns and as a speech writer. He is a family trustee of Bernheim Aboretum in Louisville and holds a bachelor’s degree in political science from American University. He grew up in Cincinnati, is a CCDS grad. He proudly says his great, great, grandfather He and his wife make their home in Kentucky. He is a regular contributor to NKyTribune. Contact him at tomblockct@aol.com.