President Barack Obama‘s January 20th State of the Union Address will highlight his proposal to raise $320 billion in new tax revenue over ten years to benefit middle and lower income workers by providing them with additional tax breaks including a tripling of the child tax credit to $3000 per child, a second household earner tax credit of $500 and an expansion of the Earned Income Tax Credit (EITC) program, a refundable tax credit for low to moderate income workers. And of course, the tax revenue will also be financing the Obama Administration’s latest give away “free community college”. Once again, we have the panderer-in-chief releasing yet another misguided Robin Hood policy which proposes to put more money in the pockets of everyday people by making the top 1% of individual tax payers “pay their fair share” and by sticking it to the fat cat corporations. The plan is never going to get past the new Republican controlled congress. So why is President Obama delivering this plan and using the State of the Union platform to promote it to the American people? This is just another ploy to play to the lower income voter base while endeavoring to distract attention from the bad optics which the President is currently experiencing on all other fronts, including radical Islamic terrorism (He can’t even speak the words.), national security, race relations, immigration, and Obamacare. As usual, the funny math doesn’t make any sense. President Obama’s plan is going to once again hurt the middle class not help them. And when Iowa Republican Senator Joni Ernst offers the GOP response to President Obama’s State of the Union Address, she is sure to come out swinging when she highlights the “holes” in President Obama’s tax plan.
The plan proposes raising the capital gains tax from 23.8% to 28% on couples earning more than $500,000 which would make it nearly double the 15% it was when President Obama assumed office. The tax plan also calls for changes in the way inheritance taxes are levied which would effectively raise the inheritance taxes collected from 40% to 60% and create a second tax scenario. First the recipient pays an inheritance tax on the property he inherited. Then, if he later sells the property, he is assessed a capital gains tax if the property goes up in value. An individual could conceivably be paying the top “death tax rate” of 40% on his inheritance and then later pay a 28% capital gains tax on remaining funds for an effective integrated tax rate of 60%.
Obama’s plan also includes a .07% tax on the liabilities of large banks which have assets over $50 billion. Once again, while Obama may be selling this as the big bad banks paying their fair share, the reality is that the banks are going to have to fund this tax. And that will inevitably involve passing the cost onto the bank’s customers and their employees. Customers will pay higher fees for services and employees will see reductions in benefits.
And while Obama is out on his tour promoting his plans for “free community college” which carries a price tag of $60 billion in federal spending and $20 billion in state level spending over a ten year period, he has said nothing about how he plans to hit families saving for college by using a 529 plan with a new withdrawal tax. Under current law 529 plans are savings instruments where distributions are tax free as long as the funds distributed are used to pay for college. Obama plans to now tax all distributions including those used to finance a college education. Ouch.
President Obama is also requiring employers with more than ten employees who don’t already have a 401(K) type savings program to set up a payroll deduction traditional IRA for their employees. Obama’s program also mandates that part time employees who have been with the organization a substantial amount of time have access to this savings benefit. Again, while encouraging employees to save is a good thing, the Obama Administration should not be mandating that firms implement these programs particularly if they are not organizationally set up to appropriately manage them. Interestingly enough, while President Obama is forcing employers to implement payroll deduction savings programs for their employees, he is at the same time imposing caps on retirement savings levels. According to the new proposal, individuals will be subject to $3.4 million aggregate of all IRA and 401K accounts or a $210,000 annual retirement payout. So in other words, President Obama has proclaimed that $210,000 a year is enough to live on for anyone. What happened to the America where hard work is rewarded and earning potential is unlimited? Or are we once again being forced into “shared prosperity”?
So when President Obama starts proclaiming the benefits of his new tax proposal, think about where he is getting the money to fund these benefits. Don’t be fooled by rhetoric that the rich and the corporations are going to fund these programs. The reality is that most of the funding for these benefits is coming out of your pocket.
The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by EagleRising.com