Obama's State of the Union will include a major new tax reform proposal. Here it is.

In his State of the Union address on Tuesday, President Obama will propose reforms to the tax code that make it dramatically more progressive — with higher taxes for very wealthy individuals and enormous banks, and lower taxes for a range of middle- and working-class families — according to a White House official who provided Vox details of the plan.

Obama will call for three different tax hikes, all on the wealthy, counterbalanced by four different tax cuts. The idea is that the changes would be revenue-neutral. The proposal also features some significant changes to the way IRAs work, which would result in higher taxes for a few very wealthy people and lower taxes for many classes of workers who currently lack access to tax-subsidized retirement accounts.

Can you do a short summary of Obama's tax proposal?

The proposal features three tax hikes:

• An increase of the top long-term capital gains and dividend tax rate to 28 percent.
• An end to the "stepped-up basis" loophole.
• A tax on borrowing by very large financial services companies.

The proposal features four tax cuts:

• A new $500 "second earner" tax credit, to help defray the extra costs incurred by married couples where both partners work.
• A more generous Earned Income Tax Credit (EITC) program.
• A consolidation and expansion of child tax credit programs, so as to reduce taxes on families with small children.
• A consolidation and expansion of tax credits oriented toward higher education, to reduce taxes on college students and their families.

The proposal features changes to tax-subsidies retirement accounts:

• Tax-subsidized retirement plans would max out at $3.4 million in total assets.
• Small employers would be made to automatically enroll workers in tax-subsidized retirement plans, and the employers would be offered subsidies to defray the costs.

What are the details on Obama's proposed tax hikes?

Increasing the tax rate for capital gains: Capital gains are the income you get when you buy something — normally stocks or bonds or other investment products — and then sell it later for a profit. Right now the highest possible tax rate for capital gains income is 20 percent, plus a 3.8 percent Medicare tax. Obama is proposing to raise that to  total of 28 percent (i.e, 24.2 plus the 3.8), where it was at the end of the Reagan administration. He is proposing to do the same for dividends, which are payments that most companies make to the owners of their stock.

Ending the stepped-up basis loophole: The stepped-up basis rule is a major tax benefit for people who inherit large fortunes.

It arises because capital gains tax is paid not when an asset increases in value, but when it is sold. Normally the gain is the difference between the purchase price and the sale price. But if you came to own your $10 million in stock because you inherited it from your father, then there is no purchase price to use as the basis for calculating your capital gain. Under the stepped-up basis rule, the IRS uses the value of the asset at the time you inherited it which is often much higher than the original price paid by the person you inherited it from. Closing the loophole would be very costly for a handful of wealthy heirs and heiresses.

A tax on bank borrowing: The last tax provision is unrelated. Obama is proposing a 0.07 percent tax on the borrowing of banks with over $50 billion in assets. This would affect about 100 banks.

In recent years there has been a trend toward regulators seeking to reduce borrowing by America's largest banks. The basic thinking is that when giant banks go bust, they impose large costs on the rest of the economy. Consequently, policymakers have a tendency to bail out the creditors of large banks. That leads to a situation in which it's arbitrarily cheap for giant banks to borrow money — since lenders assume the government will step in if there's any trouble. Regulatory curbs seek to limit the public's exposure to future bailout costs. Obama's tax proposal is a different way of accomplishing something similar. Imposing the tax exclusively on banks with over $50 billion in assets turns it into something America's smaller community banks should love.

How about the tax cuts?

The second earner credit: This one is pretty simple. Obama is proposing to offer a tax credit equal to 5 percent of the first $10,000 of earnings for the lower-earning spouse in a married couple, if the couple earns $120,000 or less. Families earning between $210,000 and $120,000 would get a partial credit. Families earning over that threshold get nothing. It's a tax cut, in other words, for middle-class married couples with two workers.

Boosting the EITC: On the EITC — which is essentially a negative income tax for low-wage workers — Obama is proposing two things. First is a more generous EITC for childless workers and non-custodial parents. Both the White House and leading Republicans have supported this for a while, though they disagree about how to pay for it. Second, way back in the 2009 stimulus bill the EITC was made more generous. That extra generosity is currently scheduled to expire in 2017. Obama's tax reform proposal includes the idea that this enhancement should be made permanent.

Child tax credits: Obama is proposing to kill the current child care flexible spending accounts while expanding the number of families who are eligible for the Child and Dependent Care Tax Credit and increasing the maximum credit that is allowed. Under the White House's plan, parents of young children who earn less than $120,000 could get a $3,000 tax credit to offset child care expenses.

Higher education tax benefits: The administration is seeking to solve the problem that many families do not appear to understand what programs they should be applying for on higher education. A 2012 GAO study found that misinformation about these credits cost 14 percent of tax filers and average of $466 per household.

The core of the proposal here is to fold a number of existing tax credit programs into the American Opportunity Tax Credit program that Obama created in 2009. The AOTC is scheduled to expire in 2017, and Obama's plan would make it permanent. The plan would also make AOTC benefits more valuable to poor people, and expand eligibility to include non-traditional students. In addition, he is proposing a variety of changes to the tax treatment of Pell Grants and pay as you earn student loans that are designed to make tax filing simpler.

How is Obama proposing to change retirement accounts?

IRAs, 401(k)s, and other tax-advantaged retirement accounts are supposed to encourage people to save by offering preferential tax treatment to money placed in the accounts. But retirement accounts are typically set up through employers, and administering them isn't free. Consequently, many smaller firms don't offer retirement plans and many firms try to avoid offering them to part-time workers.

Obama's plan would require all companies with at least 10 workers to automatically enroll their employees in an IRA program (employees could subsequently opt-out) and provide money for small businesses to defray the administrative costs. It would also require employers to make retirement programs available to long-term part-time staff.

Conversely, Obama wants to limit the ability of extremely wealthy individuals to take advantage of these accounts. Mitt Romney, for example, had over $100 million in his IRA in 2012. In theory, people are only allowed to contribute $5,500 per year to an IRA, so amassing that level of wealth requires either stupendous good luck or else some kind of shenanigans involving deliberate undervaluing of the assets you put in your account. Rather than undertake the complicated task of trying to police those shenanigans, Obama is proposing a simple hard cap of $3.4 million in an IRA.

Do Obama's proposals have any chance of happening?

No. None whatsoever. The White House is at pains to note that most of the individual middle- and working-class tax benefits they are proposing enjoy some measure of bipartisan support. But Obama is proposing to pay for them with what amounts to a series of tax increases on rich people.

Republicans have made it very clear over the years that they do not believe that rich people should pay higher tax rates. To embrace this plan would entail not just a spirit of compromise that is generally lacking on Capitol Hill, but for the GOP to totally abandon one of its core economic principles.

Meanwhile, there are bound to be Democrats who will object to the bank tax proposal. Many politicians in Obama's party — especially those who represent New York City and its suburbs — have ties to major financial institutions and would not welcome a tax on a key home town industry.