(Reuters) - President Barack Obama's new tax plan ran into rapid criticism from the Republicans on Sunday, underscoring the challenges facing any attempt to overhaul the U.S. tax code.
With the start of a new Congress this month under Republican control, lawmakers have been discussing tax reform. However, with Congress deeply divided on fiscal policy, Obama's latest tax plan is likely to hit strong opposition.
Unable to compromise over taxes and spending, Washington has not thoroughly revamped the code in 28 years, although it is commonly acknowledged that the tax code is riddled with loopholes and does not raise enough revenue to pay the country's bills.
The U.S. economy is growing again and last year added jobs at the fastest clip since 1999. While the government still borrows to meet its budget, the deficit has declined sharply.
Ahead of Obama's State of the Union address on Tuesday, senior administration officials said on Saturday the Democrat president will call for new taxes on the wealthy and on Wall Street banks, both Republican constituencies.
Obama proposes raising the top tax on capital gains to 28 percent from 23.8 percent, while also shutting down a loophole that lets the heirs of large estates avoid paying the full capital gains tax on assets they inherit.
He also proposes imposing a fee on the liabilities of the nation's largest roughly 100 financial firms.
"The president needs to stop listening to his liberal allies who want to raise taxes at all costs and start working with Congress to fix our broken tax code," said Republican Senator Orrin Hatch, the Senate's top tax law writer.
Obama's proposals would slap tax hikes on "small businesses, savers, and investors," Hatch said in a statement.
Congressional Republicans are circulating plans to cut taxes on businesses by, for instance, repealing a tax on medical device manufacturers that was imposed under Obama. Another Republican plan would cut the overall tax rate on businesses.
Obama will also propose a handful of tax measures to help middle-class families with costs for college and child care, as well as new retirement savings options.
"The president's tax proposals focus right where we need to - creating opportunity for middle class families," said Sander Levin, the top Democratic tax writer in the House of Representatives, in a statement.
Under Obama, taxes have already been raised on the wealthy and the economy has recovered from the 2008 financial crisis.
Effective in 2013, there was an increase to 20 percent from 15 percent in the capital gains tax for high-earners. Obama's Affordable Healthcare Act imposed an additional 3.8 percent tax on investment income for households making $250,000 and up.
The ACA law also added a 0.9 percent tax on ordinary income for high earners. In addition, the top tax bracket for ordinary wage income went up to 39.6 percent, from 35 percent, for individuals making $400,000 and couples earning $450,000.
Republican Representative Jason Chaffetz called Obama's new plan "a non-starter."
"Are you going to actually grow the economy and jobs, are entrepreneurs going to be better off, are small businessmen going to be better off, with more taxes and more government? No!” he told CNN's "State of the Union" show.