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State of the Union: Taxes on the 1 percent could fund middle-class tax credits

President Obama is turning to his biggest television audience of the year to pitch tax increases on the wealthiest Americans and put the new Republican Congress in the position of defending top income earners over the middle class. 

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    President Barack Obama speaks at Pellissippi State Community College in Knoxville, Tenn., Jan 9.
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Republican lawmakers are already signaling they will do what they can to block President Barack Obama's pitch for tax increases on the wealthiest Americans.

Obama is making that pitch to a huge television audience in hopes of putting the new Republican Congress in the position of defending top income earners over the middle class.

As Obama continues to signal what he will propose during Tuesday's State of the Union address, senior administration officials said during the weekend that he will call for raising the capital gains rate on top income earners and eliminating a tax break on inheritances. The revenue generated by those changes would fund new tax credits and other cost-saving measures for middle-class taxpayers, officials said.

Tax increases are rarely welcomed by congressional Republicans, who now hold majorities in the House and the Senate for the first time in Obama's presidency. His tax proposals will probably be dismissed, if not outright ignored, by lawmakers outside the Democratic Party's liberal base.

Rep. Adam Kinzinger (R) of Illinois said that he had heard all five of Obama's State of the Union addresses, which he said are filled with proposals both good and bad. But he said on ABC's "This Week" that the president has fallen short by failing to establish close ties to Congress.

Key Republicans in both chambers indicated they would oppose the plan

"Slapping American small businesses, savers and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings and create jobs," Sen. Orrin Hatch (R) of Utah, chairman of the Finance Committee, said in a weekend statement.

"More Washington tax hikes and spending is the same, old top-down approach we've come to expect from President Obama that hasn't worked," said Michael Steel, a spokesman for House Speaker John Boehner.

Obama aides were not surprised.

Said White House senior adviser Dan Pfeiffer: "Are they going to agree on everything? Absolutely not. I think we should have a debate in this country between middle-class economics and trickle-down economics and see if we can come to an agreement on the things we do agree on." He spoke on CBS's "Face the Nation."

Administration officials disclosed details of the tax proposals on the condition of anonymity because they were not authorized to discuss the proposals by name before the president's speech.

The centerpiece of the president's tax proposal is an increase in the capital gains rate on couples making more than $500,000 per year to 28 percent, the same level as under President Ronald Reagan. The top capital gains rate has already been raised from 15 percent to 23.8 percent during Obama's presidency.

Obama also wants to close what the administration is calling the "trust fund loophole," a change that would require estates to pay capital gains taxes on securities at the time they're inherited. Officials said the overwhelming impact of the change would be on the top 1 percent of income earners.

Administration officials pointed to a third proposal from the president as one they hope Republicans would support: a fee on the roughly 100 US financial firms with assets of more than $50 billion.

Raising the capital gains rate, ending the inheritance loophole and tacking a fee on financial firms would generate $320 billion in revenue over a decade, according to administration estimates. Obama wants to put the bulk of that money into a series of measures aimed at helping middle-class Americans.

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