Last night, the President gave his sixth State of the Union address where he outlined his policy agenda for the coming year (video, transcript). The tone of the speech was decidedly optimistic, with broad language urging Congress to work with him to get things done. Unfortunately, many of the policies the President set forth have been vetted by the political process and have little chance of advancing. Issues ranged from national security to climate change to education.

On the economic front, the President called for a hike in the minimum wage, as he did in his address last year. This proposal has been rejected by Republicans as an attempt to divide Americans along class lines.

On the tax front, the President stopped short of calling for tax reform, a policy goal on which there has been common ground in recent months as he and House Ways and Means Committee Chairman Paul Ryan (R-WI) both indicated some support for “business” tax reform. Instead, the President touted “middle class economics”, referencing his recently-released $320 billion tax proposal to expand incentives for education and child care while raising taxes on the “top one percent”. In all, the tax section of the speech amounted to two paragraphs. As you can see below, the details of the so-called “trust fund loophole” proposal he offered last Saturday were mostly omitted:

“Now, the truth is, when it comes to issues like infrastructure and basic research, I know there’s bipartisan support in this chamber. Members of both parties have told me so. Where we too often run onto the rocks is how to pay for these investments. As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways the superrich don’t need, denying a break to middle class families who do.

“This year, we have an opportunity to change that. Let’s close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America. Let’s use those savings to rebuild our infrastructure and make it more attractive for companies to bring jobs home. Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford. And let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth. We can use that money to help more families pay for childcare and send their kids to college. We need a tax code that truly helps working Americans trying to get a leg up in the new economy, and we can achieve that together.”

More details on the President’s tax proposals will be available when he releases his FY 2016 budget proposal in the coming weeks. As in previous years, we expect several provisions that will impact estate taxes, including more specifics on his recent proposal.

The Republican response to the SOTU was given by freshman Senator Joni Ernst (R-IA) (transcript, video). Her comments were broad, expressing opposition to Obamacare and support for the Keystone XL pipeline expanded international trade. On the tax front, she expressed support for tax reform, saying:

“Let’s simplify America’s outdated and loophole-ridden tax code. Republicans think tax filing should be easier for you, not just the well-connected. So let’s iron out loopholes to lower rates — and create jobs, not pay for more government spending.”

“We’ll propose ideas that aim to cut wasteful spending and balance the budget — with meaningful reforms, not higher taxes like the President has proposed.”

Another more substantive response on tax policy was given by House Ways and Means Chairman Paul Ryan (R-WI) on Fox News. Ryan recognized that the President seems to be no longer in favor of tax reform, a particular goal of Ryan. He also called out the President for his rhetoric, saying:

“The divisive class warfare rhetoric he uses to try to divide people based on income – that’s not presidential. We want to come together to grow a healthy economy. Hardworking taxpayers deserve a break in this country. They’re not getting one. Washington hasn’t been listening to them. I think it would be refreshing to see us come together to and get things done for the common good to grow the economy and get people back to work.”

It is worth noting that much of this language comes straight from the messaging Each American Dream has developed with Frank Luntz and shared with congressional leaders like Chairman Ryan. EAD has met with Ryan’s staff several times to discuss the most effective messaging to promote economic freedom and fight policies that divide America for political gain.

PATG will be monitoring the tax debate closely as it continues to evolve over the coming months. In addition, we will be engaging leader like Chairman Ryan to ensure they realize proposals like that recently offered by the President would be extremely harmful to family businesses.

Best regards,