by Ira Teinowitz in Washington | Published January 25, 2012 at 12:37 PM
President Obama vowed to defend the Dodd-Frank Wall Street Reform Act during his State of the Union address Tuesday, Jan. 24, and hinted that he would again propose removing some tax loopholes in his 2013 budget.
On a day that Republican presidential candidate Mitt Romney announced he had paid an effective tax rate of less than 15%, the president also called for a minimum tax rate for millionaires and billionaires. "Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30% in taxes," the president said.
Obama also said he would order a full, federal investigation to determine if fraudulent activities of big banks contributed to the 2008 financial panic. According to press reports, he will name New York Attorney General Eric Schneiderman to co-chair a task force that will investigate the role of Wall Street in the financial collapse and the mortgage crisis.
In the budget he will unveil in two weeks, the president has been expected to propose eliminating preferential treatment for carried interest earned by investment partnership managers. The expectation is that, as with his previous budget proposals, carried interest would be taxed at ordinary income rates rather than the lower capital gains rate. Previous attempts to change the tax treatment have succumbed to furious lobbying by the private equity industry and other financial industry sectors.
In the speech Obama made no direct mention of that proposal, but offered a far broader suggestion. "We need to change our Tax Code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes," the president said. "My Republican friend [Oklahoma Sen.] Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you're earning a million dollars a year, you shouldn't get special tax subsidies or deductions."
The president used his annual speech before a joint session of Congress to discuss a wide variety of issues including education, infrastructure and jobs, but he repeatedly defended signature reforms of Wall Street and the healthcare system passed during his term, both of which Republicans have vowed to defeat.
"I will not go back to the days when health insurance companies had unchecked power to cancel your policy, deny you coverage or charge women differently from men. And I will not go back to the days when Wall Street was allowed to play by its own set of rules," the president said.
He blamed Wall Street for the job losses that began under the Bush administration and continued early in his administration.
"Let's remember how we got here. Long before the recession, jobs and manufacturing began leaving our shores. Technology made businesses more efficient, but also made some jobs obsolete. Folks at the top saw their incomes rise like never before, but most hardworking Americans struggled with costs that were growing, paychecks that weren't, and personal debt that kept piling up," Obama said.
"In 2008, the house of cards collapsed. We learned that mortgages had been sold to people who couldn't afford or understand them. Banks had made huge bets and bonuses with other people's money. Regulators had looked the other way, or didn't have the authority to stop the bad behavior.
"It was wrong," he said. "It was irresponsible. And it plunged our economy into a crisis that put millions out of work, saddled us with more debt and left innocent, hardworking Americans holding the bag," he said.
Obama also defended financial reform. "The new rules we passed restore what should be any financial system's core purpose: getting funding to entrepreneurs with the best ideas, and getting loans to responsible families who want to buy a home, start a business or send a kid to college.
"So if you're a big bank or financial institution, you are no longer allowed to make risky bets with your customers' deposits. You're required to write out a 'living will' that details exactly how you'll pay the bills if you fail -- because the rest of us aren't bailing you out ever again. And if you're a mortgage lender or a payday lender or a credit card company, the days of signing people up for products they can't afford with confusing forms and deceptive practices are over."
In the speech the president also called on Congress to increase penalties for financial crimes and announced plans to create new Justice Department units to target investment crime and work with state attorneys general to probe abusive lending practices.