President Obama used his first address to a joint session of Congress Feb. 24 to pledge increased fiscal responsibility in the federal government, which he said will be achieved in part through higher taxes on corporations and the wealthiest 2 percent of Americans.

Obama provided few new details of his plans for the tax code, but emphasized that 95 percent of Americans will see their tax rates fall as a result of the economic stimulus legislation (Pub. L. No. 111-5) enacted Feb. 17.

In his first budget proposal, set for release Feb. 26, Obama said he will lay out a plan that includes the elimination of corporate tax “loopholes,” and higher tax rates on the highest-income households.

“We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas,” Obama told the joint session of Congress.

Obama said his plan to raise taxes on households earnings more than $250,000 per year will “save our children from a future of debt” and stressed most other taxpayers will begin to see additional tax relief in their paychecks beginning April 1.

Republicans praised Obama's commitment to tackling the trillion-dollar budget deficit, but expressed concern about the president's plan to do it through any increase in taxes.

House Minority Leader John Boehner (R-Ohio) said the focus needs to be on instituting a spending freeze in the federal government that should begin with the omnibus appropriations bill set to get a vote in the House Feb. 25.

“It is time for both parties in Washington to back up our promises of fiscal responsibility with real action… That means not raising taxes in the midst of a recession--a sure recipe for a weaker economy and fewer jobs,” Boehner said.

Although Obama did not provide a specific menu of tax changes, analysts said his prior comments make it likely that he will seek repeals of tax benefits such as the tax code Section 199 manufacturing deduction and, possibly, tax deferrals on foreign income, which he has criticized as a way for U.S. multinational corporations to hide money in offshore tax havens.

The Joint Committee on Taxation has estimated that repealing the domestic activities production deduction would raise $115 billion in new revenues and changing the rules on the allocation and deferrals of expenses and foreign taxes on the basis of repatriation of foreign income would raise $106 billion over 10 years.

Obama has also previously proposed the creation of an international tax evasion watch list as part of the government's efforts to crack down on tax avoidance strategies.

Still, the president has also said he would be open to cutting corporate tax rates from their current level of 35 percent to 28 percent, as long as it is accompanied by an elimination of some of the narrowly crafted tax benefits written into the tax code.

Obama also said health care reform “cannot wait another year,” and Senate Finance Committee Chairman Max Baucus (D-Mont.) has said he expects to see changes in the tax code's treatment of the income exclusion for health insurance as a result of the broader reform efforts.

By Brett Ferguson

Copyright 2009, The Bureau of National Affairs, Inc.