In his upcoming state of the union address Barack Obama will propose approximately $320 billion in new taxes. He’s packaging this as a “Robin Hood*” effort:
“By ensuring those at the top pay their fair share in taxes, the president’s plan responsibly pays for investments we need to help middle-class families,” the administration says in a summary. It faces long odds in the Republican-controlled Congress, where lawmakers have bitterly complained about a string of recent tax increases on the wealthy.
Ostensibly, by ripping off some taxpayers he will be able to give more people free stuff.
This is simply cynical class warfare of several different levels.
First, and foremost, not a single penny of any tax increase on the wealthy will see its way into the pockets of the middle class simply because Obama is not advocating tax relief. Rather he’s proposing to use the increase to create a new barrage of increased in federal spending that ensures in a few years that the middle class will be called upon by a future Democrat administration to pay more for all the wonder spending the federal government is doing.
The administration is able to tout these tax increases as helping the middle class because they define as rich anyone who is not destitute. These are the taxes. The fact is that much of the tax increase on the wealthy comes from the middle class. From Americans for Tax Reform:
1. Capital Gains Rate Hike: raises capital gains and dividends tax rate from 23.8% today (20% plus 3.8% Obamacare surtax) to 28% (including the Obamacare surtax).
If you have investments, you are screwed.
. Stealth increase in the death tax rate from 40% to nearly 60%.
Under current law, when you inherit an asset your basis in the asset is the higher of the fair market value at the time of death or the decedent’s original basis. Almost always, the fair market value is higher.
Under the Obama proposal, when you inherit an asset your basis will simply be the decedent’s original basis.
If you inherit a business, a house that was owned for more than 10 years, or any farm anywhere you will have to sell it to pay taxes.
4. Tax Increase on Families Saving for College
Under current law, 529 plans work like Roth IRAs: you put money in, and the money grows tax-free for college. Distributions are tax-free provided they are to pay for college.
Under the Obama plan, earnings growth in a 529 plan would no longer be tax-free. Instead, earnings would face taxation upon withdrawal, even if the withdrawal is to pay for college. This was the law prior to 2001.
This is best seen as a way to push free community college. He destroys a very popular savings plan that gives parents significant autonomy in favor of an entitlement that benefits very few students who have the aptitude for college.
5. Tax Increases in Retirement Plans and a New Employer Mandate
There would be a new cap in the amount one could accumulate in the aggregate in all IRA and 401(k) type accounts of $3.4 million. After that, you can’t save any more new dollars. The idea is that this is enough to secure a $210,000 annual distribution in retirement, which the government apparently deems “enough” for a retiree.
In addition, all employers with more than 10 workers and who do not have a 401(k) type plan would be mandated to set up payroll deduction Traditional IRAs for their employees. Also, part-time workers would have to be covered under retirement plans if they have been working someplace long enough. These two things are a new kind of employer mandate from Obama.
Like the “Cadillac” health plans, this is a Trojan horse designed to destroy private retirement plans. $3.4 million is not a lot of money to save over a lifetime and with inflation it will shrink steadily and bring more plans under government control.
Hopefully, the GOP Congress will resist this nonsense but with all the mewling about bipartisanship and the willingness of the Senate to be as rapacious in taxing things as the Democrats, we shouldn’t hope for much.
* Robin Hood was a tax protester. In folklore, he was responding to extortionate taxes imposed on the the “proletariat” during the reign of King John, a time when the nobility and clergy were exempted from taxation. Robin Hood was actually giving the poor a tax refund.