What’s the difference between President Obama and an eighth-grade student?
The student knows the proper way to use a footnote.
Footnotes are generally used to disclose sources or to explain an obscure fact. They are not used to recommend massive tax policy changes. Yet this is just what Obama does in his Fiscal Year 2010 Budget Proposal.
Slog through the budget to page 121, and see footnote 1, which states, “[T]he estate tax is maintained at its 2009 parameters.” What does this mean?
Under current law enacted by the Bush tax relief of 2001, the death tax is scheduled to be repealed for one year in 2010. Due to complex Senate budget reconciliation rules, the tax then comes back at the rate of 55% in 2011. Obama’s footnote assumes that Congress will cancel the temporary repeal and make the death tax permanent at the rate of 45%.
President Bush and most of the Republicans have been fighting to make repeal permanent for the last eight years. This change would render all those efforts asunder.
That’s a pretty significant policy proposal. Why is Obama hiding it deep in his budget in a footnote? Is there a reason to be so secretive?
Oh, right. Obama has probably heard that taxes which punish people for saving and investing don’t help the economy. He may have read reports from his own chief economic advisor, Larry Summers, who has said that the death tax is bad policy.
Economists on the left and the right agree — the death tax takes a huge bite out of productive capital in the economy. Two of President Clinton’s chief economic advisors — Joseph Stiglitz and Alicia Munnell — have written extensively about the impact of the tax on capital.
The Joint Economic Committee has calculated that the death tax reduces the stock of capital in the economy by $847 billion. That is $847 billion that can’t be used to start new businesses, expand existing operations, and create new jobs.
Obama probably realizes that in a time of economic turmoil, confiscating nearly half the capital of productive businesses is the last thing the federal government should do, especially if he is concerned about job creation.
The American Family Business Foundation’s new study by Dr. Douglas Holtz-Eakin finds that the death tax is responsible for lowering overall employment by 1.5 million jobs.
In the case of family owned businesses and farms, the loss of any capital can have a devastating impact on the survival of the enterprise. Family owned businesses are highly reliant on inheritances to finance the business and keep it viable. When the death tax confiscates a substantial portion of the inheritance, it makes it difficult for the heirs to maintain the business.
Obama has probably heard the stories of family business owners who are wiped out by the death tax or who are forced to cut jobs in order to keep the business running. In Biloxi, Miss., the Mavar family was forced to sell their multi-generational family business to a large national corporation due to looming death tax liabilities. They hoped that the corporation would keep the business and its jobs in Biloxi, but within five years, the entire business was relocated out of state.
The Mavars’ story is just one of the many stories that describe the real human costs of the death tax.
And of course, Obama might realize that taxing those who work hard, save and invest, and leave an inheritance to their children, is simply unjust. People who have already paid taxes on their income shouldn’t be punished for being responsible throughout their life and creating wealth and jobs for others.
68% of Americans agree that the death tax is unjust and should be repealed. These same Americans certainly do not support permanently shackling the nation with a 45% death tax.
Clearly, Obama doesn’t want to hurt his popularity by promoting the hated death tax. Ergo, rather than openly supporting the tax, President Obama is promoting it on the sly in his budget proposal.
All thanks to clever use of a footnote.
Of course, this is only the budget proposal, and it will not determine the future of the death tax. Even so, it sets the tone for the administration’s policy goals and their tactical mindset.
Clearly, if Obama can’t be upfront about the tax plans in his budget proposal, he knows that he faces strong opposition.
Let’s see how long he can keep his secret.