Beware Obama's State of the Union Tax Hike
The president's new tax plan will wreak economic havoc.
Trying to bury bad news by releasing it over a holiday weekend is one of the oldest tricks in the book.
What makes it funny in the case of President Obama is that the bad news isn't some inspector general's report or inside-the-Beltway scandal, but the details of the $320 billion tax increase that Obama himself plans to ask for in his State of the Union address this week.
The White House fact sheet on the tax increase was released at 8 p.m. on Saturday night of the three-day Martin Luther King Jr. holiday weekend. Compare it with how Obama released another aspect of his State of the Union policy package, free community college. That initiative got a weekday presidential speech. The tax increase to pay for it got the Saturday night fact-sheet treatment.
And it's no wonder that this White House treats its own tax policy as if it is some sort of embarrassment. It is. Some day, when historians look back on the Obama administration, the Saturday night tax-grab will loom right up there with Benghazi, the broken Obamacare web site, and the je suis Charlie no-show as one of this presidency's lowest moments.
Low, but telling, because it shows how this administration approaches tax policy not from the point of view of raising the revenues necessary to run the government, and not from the view of creating the maximum incentives for growth and innovation, but rather as a kind of zero-sum, redistributionist means of political warfare. It is tax policy as power and punishment, tax policy as vengeance.
So Obama's 2012 opponent, Mitt Romney, had an individual retirement account valued at between $20 million and $100 million? Fine, Obama's fact sheet complains of "300 extraordinarily wealthy individuals who have accumulated more than $25 million each in IRAs." Obama proposed to deal with this problem retroactively, by taxing IRAs "once balances are about $3.4 million, enough to provide an annual income of $210,000 in retirement."
So banks are having success working with Republicans to roll back elements of the Dodd-Frank law, and JPMorgan Chase CEO Jamie Dimon complains publicly that it's un-American for his bank to be "under assault" by five or six regulators at once? Fine, Obama's fact sheet proposes $110 billion in new taxes over 10 years on large banks, investment management firms, and insurance companies.
So some Christian conservatives or doctors', lawyers', and bankers' wives—in other words, Republicans—prefer to stay home with the kids? Fine, Obama's fact sheet creates a new "second earner credit," a $500 tax goodie that stay-at-home moms and home-schoolers can forget about, except that their family's money will be taken to give it away to others.
Even the internal logic of the Obama tax increase is flawed.
The fact sheet makes the case for an increase to the 28 percent rate on capital gains on the grounds that it was the top rate at the end of the Reagan administration. But no one in the Obama administration is talking about returning to the 28% top Reagan rate on income, a rate much lower than the current 39.6 percent. Nor is anyone talking about returning to Reaganite spending levels.
The Obama administration is running around paying lip service to the idea of cutting the corporate income tax rate on the grounds that ours is uncompetitive relative to lower rates elsewhere. But when it comes to raising the capital gains rate, the international competitiveness issue suddenly disappears from the Obama analysis.
A similar inconsistency is on display in the way the Obama administration makes the case for changes to the estate tax. The administration claims that its proposal to end the step-up in tax basis at death would "sharply reduce" what it calls "'lock-in' incentives to hold assets for generations, even when resources could be reinvested more productively elsewhere." But an increase in capital gains tax would increase the lock-in effect. If the Obama administration is really concerned about lock-in, it should reduce capital gains taxes and eliminate the death tax. Then, and only then, there might be a case for eliminating the step-up in basis.
Finally, the administration talks about the benefits of savings and of higher education. Yet it's proposing to start taxing withdrawals from section 529 college savings accounts. That would force more families to take out federal government-backed student loans, with income-based repayment or forgiveness programs for those who enter government-approved professions or earn incomes that the government deems sufficiently low.
None of these tax increases is likely to become law in the next two years with a Republican Congress. A Democratic presidential candidate may try to make these proposals the stuff of a campaign. But he or she may have a tough time. After all, you can't run an entire presidential campaign over a holiday weekend.
