Obama loads taxes on the middle class. Again.
President Obama’s hour-long State of the Union address was a political speech cheerleading the major causes of the Left rather than a speech to Congress and the American people about governing in the next year or two.
This is understandable. Obama was and is a good candidate. He has won the presidency twice. He has not been a good president. So he returns to what he does well: campaigning.
So Obama’s first priority was, once again, to raise taxes on the American people. A total of $320 billion in new and higher taxes this time.
Obama called for increasing the capital gains tax from 23.8 percent to 28 percent. (Bill Clinton signed a Republican bill to reduce the capital gains tax from 28 percent to 20 percent.) Cutting the capital gains tax in 1978, 1981, and 1997 increased the revenue from capital gains taxes because the tax cut was a great incentive to work, save, and invest. Increases in the capital gains tax in 1969 and 1990 and 2012 have resulted in reductions in the money raised through that tax. Reagan knew this. Obama doesn’t care.
There are many other tax hikes in Obama’s budget, including:
-A stealth, effectively second death tax rate, from 40 percent to nearly 60 percent. 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 descendant’s original basis. Conceivably, an accumulated capital gain could face a 40% death tax levy and then a 28% capital gains tax on what is left. Do the math, and that’s an integrated federal tax of just under 60% on inherited capital gains.
-Bank Tax. A new 7 basis point (0.07%) tax on the liabilities (not assets) of the 100 or so U.S. firms with assets over $50 billion. Like all taxes, the burden will fall to these firms’ customers and employees, since businesses don’t pay taxes — people do.
-Tax Increases in Retirement Plans. 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.
-The Obama plan eliminates the dependent-care Flexible Spending Account that many workers use.
-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. The plan also effectively eliminates Coverdell Education Savings Accounts.
One theme of Obama’s campaign speech—delivered January 20 before much of Congress—was a promise to help the middle class. He had a list of projects and policies his left-of-center worldview informs him would do this. Oddly, this is by definition a list of things he has not done in the past six years. What was he waiting for? Republican control of both houses?
Granted that the State of the Union was a political wish list of things that will never happen during his presidency, it is still amazing that one of his capital demands was to destroy the 529 College Savings Plans that were enacted in 2001, made permanent in 2006. Today 12 million Americans have 529 college savings plans. The average amount in each account is $19,584. This is a tax free savings account that makes it possible for millions of American to save for their children’s college education. Obama demanded the program be destroyed by taxing it so heavily no one would ever put another dollar in such an account.
Ryan Ellis and John Kartch of Americans for Tax reform did some research and found that Obama had praised such accounts in his autobiography, and voted to make the 529 savings plan permanent in 2006. Obama then took some of the proceeds from the book to put $240,000 in his two daughter’s accounts in 2007 and repeatedly praised the plans.
This was not the first tax targeting the middle class. The Affordable Care Act, better known as Obamacare, contained 20 different tax increases. While they all hit the American economy hard, seven were clearly and directly aimed at middle-class Americans. This despite candidate Obama’s central campaign promise that no family making less than $250,000 would see any form of tax hike.
Speaking in Dover, New Hampshire on Sept. 12, 2008, candidate Obama said:
“I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” [Video]
In an address to a joint session of Congress on Feb. 24, 2009, President Obama restated the promise in forceful terms:
“If your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.”
Back in 2010 when Obamacare and its 20 taxes passed Congress, the Democrats held the Senate and House, and no one was there to protect middle-class Americans. Today, The Republicans hold the House and Senate and most of them have signed the Taxpayer Protection Pledge against any tax increase.
Boehner and others in Congress made it clear they will oppose any and all of Obama’s tax hikes starting with his attack on 529 college savings plans.
On Tuesday, January 27, Obama’s White House sounded retreat on his flagship tax hike on 529 college savings plans. Taxpayers should keep in mind that this is a tactical retreat. The president and his allies remain dedicated to limiting, regulating, taxing, and eventually ending such tax free accounts as education savings accounts, individual savings accounts, health savings accounts, and flexible savings accounts.
He won’t win in the next two years, but it is likely that Hillary Clinton would continue his campaign against middle class savings.
Norquist is president of Americans for Tax Reform and author of the forthcoming book, End the IRS Before it Ends US: How to Restore a Low Tax, High Growth, Wealthy America.