The State of the Union: How Will President Obama's Proposals Affect Your Finances?

New York (MainStreet) - “Tonight we turn the page,” President Obama said to kick off tonight's State of the Union Address.

In almost a thematic continuation of his hope and change ideals, Obama used this speech to stress this necessity for turning over a new leaf and hit strongly upon the themes of inequality and opportunity. In an economics-heavy address, Obama took advantage of a growing economy to go on the offensive. While jobs and the Dow have grown strongly in recent months, many Democrats have criticized this as growth that simply isn’t reaching the middle class or working poor.

Tonight Obama struck a boldly redistributionist tone, laying out several proposals designed to help American workers feel the recent economic growth at every level.

“The verdict is clear,” he said. “Middle class economics works.”

With Republicans in control of both chambers of Congress the President’s proposals may amount to little more than Democratic talking points over the next two years. Here’s what he proposed to do for the average American consumer.

Tax Cuts for the Middle Class

One of the most anticipated proposals in Obama’s speech tonight was his middle class tax cuts. With details leaked several days in advance of his speech, Obama proposed a series of two major tax credits targeted at middle class families.

Obama’s Robin Hood proposal would expand the Earned Income Tax Credit and create a new “second earner credit” for married households in which both partners work. The new credit would return $500 per qualifying household.

Obama also proposed a substantial tax credit for child care. Parents will be eligible for up to $3,000 per child per year, a potentially substantial windfall for parents struggling with the costs both holding a job and raising a family.

Tax Increases on the Wealthy

The President proposed paying for these tax breaks, estimated to cost approximately $235 billion over ten years, with a series of increases on top earners.

The plan would raise the top tax rate on investments from 25% to 28%, still lower than the top tax rate on paychecks. It would also close a loophole in the estate tax that allows heirs to cash out inherited investments tax free.

Along with a proposed fee on financial institutions, the new increases are expected to raise about $320 billion over the course of ten years.

“We don’t mind paying our fair share of taxes,” Obama said while calling for Congress to close loopholes in the tax code, “as long as everyone else does too.”

Community College Tuition

The President also spoke about the need for expanding access to college, telling Congress that two in every three jobs will require at least some higher education by 2020. To help students prepare for that economy Obama proposed that Congress eliminate tuition for two-year programs at community colleges nationwide.

Community college, he said, should be “as free and universal as high school is today.”

The new plan would extend to all students on track toward graduation who can maintain a GPA of at least 2.5. The federal government would pay three quarters of their tuition and would ask states to pay the remainder, saving an average $3,800 in tuition per student per year.

Qualifying schools would have to offer either credible job training or transferable credits into four year institutions. This would allow students to either achieve an associate’s degree or complete the first two years of their bachelors debt free.

Although he gave no details in either the speech or advance materials, the President also suggested that Congress take steps to help reduce the monthly payments of graduates with existing debt.

Workers’ Rights

Workers’ rights have become increasingly important for this White House. Without greater details, Obama called upon Congress to raise the minimum wage, pass a law ensuring equal pay for women, guarantee every American seven paid sick days per year and expand access to overtime pay.

“If you truly believe that you can work full time and still support a family on $15,000 per year, try it,” Obama said while addressing the minimum wage.

The administration has given specifics on most of these issues, including raising the minimum wage for all government workers to $10 per hour. However one of the biggest question marks remains the administration’s movement on overtime pay.

While all hourly workers receive automatic protection for working more than 40 hours per week, labor law also protects salaried workers who make under a certain threshold. This income of $455 per week hasn’t been changed since 1975, when it was the equivalent of earning $984 per week today. When it was originally set the law protected 65 percent of salaried workers from working long, uncompensated hours. Today it protects only 11.7%.

The Department of Labor has indicated that it will make a recommendation for raising the overtime threshold in the coming weeks. Simply correcting for inflation and raising the threshold to $984 per week would expand protection to nearly half of salaried workers.

End the Cuban Embargo

In a proposal that surprised no one, Obama expanded on his executive action from last month and proposed that Congress end the embargo in Cuba altogether.

“We are ending a policy that was long past its expiration date,” he said. “When what you’re doing doesn’t work for 50 years it’s time to try something new, and our shift on Cuba policy has the potential to end a legacy of mistrust in our hemisphere.”

The White House has announced its intention to open an embassy in Havana and restore diplomatic relations with the island nation. Only Congress, however, can fully end the embargo and travel ban.

--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website A Wandering Lawyer.

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