State of the Union Rebuttal – A Conservative View

This week the news media is focusing on the President’s State of the Union Address.  In particular, people are discussing the proposed $320 Billion tax increase and the suggested benefits to so-called “middle income economics.”  Is it true that middle class economics will benefit from the proposed tax increases?  Will increased child care credits and forced retirement savings and free community college costs outweigh the positive impacts of our current lower capital gains rates for the American economy?  The answer to both these questions is a resounding … NO!  Let’s discuss the issue now and see why these proposed tax increases in the State of the Union message will hurt the economy more than they will help.  Let’s see why these tax increases will further curtail economic growth and will decrease America’s overall standard of living.

What is the President proposing in this year’s State of the Union message?

First, capital gains tax rates will increase to 28%.

Second, the higher capital gains tax rates will also be applied to certain “inherited assets” that are not currently taxed.  For example, if parents buy and hold some assets during their lifetime, and then give them to their children as part of their inheritance, the value of the assets at the time of inheritance (typically higher than when the parents purchased the assets) becomes the children’s tax basis for later capital gains.  Effectively, the asset appreciation during the time of the parent’s ownership is tax free.  It is a vehicle for allowing tax free growth and giving children more.

Those two steps are estimated to result in $320 Billion in new taxes over a ten year period.  I assume that this is a “static” analysis because obviously people will take steps to avoid these additional taxes, if possible.  That can be expected, so actual revenues might be lower.

Third, with the proceeds from the $320 Billion tax increases, the President is proposing that the current child care tax credit be tripled to $3000 per child.  He is also proposing creating a new tax credit of $500 for families where both parents are working.

Fourth, besides child care tax credits, the President’s plan calls for requiring certain employers to automatically provide employees with IRAs.  The administration indicates 30 million more employees would obtain these mandated IRAs.

Fifth, the President’s plan would also provide some Americans two years of community college for free.  The President wants free and universal community college.  This program has been named “America’s College Promise.”  75% of these costs would be borne by the Federal government and 25% by the respective State governments.  The cost of this program has been estimated to be $60 Billion.

What are Some of the Issues with the President’s Proposal for More Taxing and More Spending?

For starters, more taxing and more spending is precisely the wrong strategy to take in this anemic recovery with over 92 million people who are not working.  I might add that the administration’s third leg of their strategic policy triad, namely a whole lot more regulating of the American economy, is also counter-productive and a boat anchor on economic growth.

Increasing capital gains tax rates is a roadblock to economic growth.  In examples throughout the last century, we know that lower capital gains tax rates act as an incentive to capital formation and investment, new business formation, new products and services, and new jobs.  Ultimately and ironically, even government revenues get a boost with a more robust economy with lower marginal capital gains rates.

Another point worth noting.  With regard to free community college, The Wall Street Journal reports that the average community college tuition costs $4,000.  Right now, the poor can already get Pell grants for $6,000.  Why should America subsidize citizens who are not poor and pay for their community college education, if they choose to go to a community college.  Plus, will that cut enrollment back in 4-year colleges and universities.

What’s the Bottom Line on the President’s Plan to Tax More and Spend More?

Overall, this plan will hurt the American economy and it will hurt Americans.  It will further hamper the economy, slow the anemic recovery, hold back economic growth, and reduce America’s standard of living.

For more information

Space does not allow me to go into further detail here.  But, in my newest book, Renewing America and Its Heritage of Freedom: What Freedom-Loving Americans Can Do to Help, I discuss in detail how to create economic growth.  Following these ideas boost America’s standard of living.

Go to RenewingAmericaBook.com or GerardLameiro.com for more information too.