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State of The Union

Tonight at 9 pm Eastern, 6 pm Pacific, President Obama is scheduled to give his 6th State of the Union address to Congress. The White House has been previewing certain initiatives, such as two years of free community college and paid sick leave, in advance of the speech tonight.

Tonight, however, the crux of his speech is expected to center around his economic proposals to promote the middle class and make a case for increasing federal spending on education and technology priorities. It is unclear, however, how his proposal to handle the largest funding issue confronting this last two years in office, the return of the Sequester spending cuts, will be received. The President is expected to propose increasing federal spending above the Budget Control Act levels in part by increasing taxes for the rich – his starting position in negotiations with Republicans that will ultimately determine the size of the budget for FY16.

Obama is unlikely to call for specific increases in stringent sequesters spending caps that start again in 2016, but he could call for ways to re-direct funds within those caps or come up with new revenues. As a remedy for past sequesters, the President has suggested maintaining funding for his priorities by increasing corporate taxes mainly by closing loopholes. That plan now would almost certainly be a non-starter on Capitol Hill with Republicans controlling both chambers.

The President did preview his tax increase proposals over the weekend, which included imposing a fee on financial institutions, closing the capital gains tax loophole on inherited assets, and raising the top rate of capital gains and dividends back to the Reagan rate of 28% among others. Additionally, Obama will propose increased and streamlined tax credits for the middle class for child care, two-earner families, and retirement savings.

For higher education, the President will propose consolidating the six overlapping education provisions into just two, while improving the American Opportunity Tax Credit (AOTC) to provide more students up to $2,500 each year over five years as they work toward a college degree. This move would likley make the AOTC permanent, index it to inflation, increase refundability, and resolve a significant problem of coordination with Pell grants that disadvantages low-income students. However, it is unclear how the  Lifetime Learning Credit would be handled and the impact on graduate students.

Read more about the President’s tax proposal here.

Watch the State of the Union at 9pm EST, 6 pm Pacific on most television stations tonight.