JUDY WOODRUFF: The president's new tax proposal that emerged over the weekend is adding fresh fuel to the ongoing debate over economic mobility and inequality in this country.
It's a plan with many different components, but at the heart of it, the president is calling for a hike in taxes on wealthier households and using some of that money to boost tax breaks for middle- and lower-income earners.
Jeffrey Brown gets some analysis about that framework and the political strategy around it.
JEFFREY BROWN: In his State of the Union speech tomorrow night, the president is expected to speak at length about changes to the tax code. His proposal calls for increasing the top tax rate on capital gains for higher-income earners to 28 percent and increasing the amount of inheritance subject to taxes, particularly for wealthier individuals and families.
In turn, the president would boost the child care tax credit to $3,000 and add a $500 tax credit for families where both parents work. The plan has a number of other provisions related to education and retirement benefits also, according to the president, aimed at benefiting middle- and lower-income families.
Neil Irwin broke it down for The New York Times' Upshot page, and he joins me now.
Neil, one of the interesting things about this moment, right, is the idea that things have changed, right, that the economy is a little better, the unemployment rate is down. Now what?
NEIL IRWIN, The New York Times: Yes, some of the old battles, the old debates that characterized the first Obama term, they are really changing.
And we're no longer in an era of ultra-high deficits. The deficit has come down a lot. The economy is getting better, so as you see job growth, the urgency of any kind of stimulus is really passing. So now the question is, what's next?
What is economic policy going to look like in these economic policy debates in the years ahead? And I think what we're zeroing in on is, the question is, how do you deal with inequality? How do you deal with the fact that middle-income Americans have not felt wage gains, have not felt improved standards of living for many years now?
JEFFREY BROWN: So, when you look at these particular proposals, you could take the inheritance tax as one particular. But there's methodology here, right, that really tweaks the income levels.
NEIL IRWIN: Right.
What President Obama is trying to do is zero in on the portion of the tax code that really benefit the ultra-rich, not just the comfortable, the people with a six-figure income, but the people making millions of dollars. One of those is, as you mentioned, what happens with inheritance taxes.
Right now, if you have a large inheritance, there's what's called stepped-up capital gains tax basis. So essentially a rich family can pass along wealth over the generations and more or less never pay capital gains tax on it. The president wants to change that to say that whenever there's a transfer of assets to the next generation, you don't start over again in terms of the capital gains tax.
This is one of many provisions that are designed to say the very wealthy have done well through this expansion, through this last generation. We want to take some of that wealth, tax them higher and use it to give working-class Americans a break.
JEFFREY BROWN: So, is your reading that this is overtly aimed at this inequality issue, as opposed to, as we have seen often, presidents talk about using the tax code for economic stimulus, or are they saying, we can do both?
NEIL IRWIN: No, look, the stimulus debates are over. This is deficit-neutral. This is not something that is designed to pump more money into the economy. It's not really expanding the reach of government. It is working through the tax code.
But it very explicitly is designed to increase taxes on the very rich, increase capital gains taxes, all kinds of taxes on investments, while also funneling that money to the working class. And that's a different message from what we have heard out of the president in the past and a sign of the new age that we're in.
JEFFREY BROWN: I suppose it's also aimed at countering the old tag, the tag that comes politically of spending — Washington spending more money on programs, on new programs.
NEIL IRWIN: Yes, there's no new programs out of this. It's all working through the tax code.
That said, Republicans are not going to like this idea. One central message out of the Republican Party for the last generation is that the key to economic growth is lowering the taxes on investment, lowering the capital gains tax. The president wants to reverse that. He wants to raise capital gains taxes. It's hard to see any Republicans supporting this.
JEFFREY BROWN: Well, rhetorically, at least, the old political argument over taxes is still there and we heard it right away, right after these were announced.
But what is new in this new era? What looks new as challenges or opportunities for both Democrats and Republicans? Start with Democrats. Is this a post-Obama era, perhaps?
NEIL IRWIN: Yes. So, Democrats are — the one thing we do know is that Barack Obama will not be on the ballot in 2016.
The Democrats have to decide what their message is going forward. And the reality is that in 2012 — or 2014, in the elections that just happened, a lot of Democrats were criticized for not really having a clear vision of the future. All they were is not the Republicans, rather than offering some coherent vision of their own.
This is a try from President Obama to offer what that vision might be. We will see if the 2016 nominee from the Democrats embraces this same idea. But either way…
JEFFREY BROWN: He's just setting it up in some ways, you're saying, for the Democrats?
NEIL IRWIN: Absolutely.
JEFFREY BROWN: What about for Republicans? What…
NEIL IRWIN: Well, Republicans, it's interesting.
We have seen some real change in language and how they're talking about the economy. They seem to acknowledge that there is growth now. It's no longer the crisis situation we were in a few years ago. But Republicans want to show that they have a plan to try and improve conditions for working-class Americans, too.
So, out of Jeb Bush, for example, in his initial efforts toward a possible presidential campaign, a lot of language about making the economy work for the middle class and helping everyone rise up through entrepreneurship and free enterprise. So really what we're seeing signs of is the 2016 election being a message, a of which party has the best plan for addressing this problem of working-class Americans not seeing raises over the last 25 years.
JEFFREY BROWN: All right, the battle, the tax battle starts tomorrow night, right?
NEIL IRWIN: Absolutely.
JEFFREY BROWN: Neil Irwin of The New York Times, thanks so much.
NEIL IRWIN: Thank you.