The PJ Tatler

Obama Will Propose to Close Tax 'Loopholes' Worth $320 Billion

President Obama, looking to fund a host of new spending schemes, will propose in his State of the Union speech to close tax “loopholes” on the rich that will generate $320 billion over the next decade.

One loophole the president wants to target is the lack of capital gains taxes on assets passed down to heirs via trust funds. The president wants those assets taxed at 28%, which is the rate the president is proposing to increase the capital gains tax and tax on dividends.

Also, big banks with assets over $50 billion would be hit with “fee” on their liabilities, theoretically discouraging them from gambling on borrowed money.

In addition to the much ballyhooed “free” community college goodie the president is proposing, he also wants to increase the tax credit for families with two working parents, and triple the child care credit to $3,000.

Reuters:

In a conference call with reporters to preview the taxation aspect of Obama’s address, one official said some of the ideas the president is outlining already have “clear congressional bipartisan support or are ideas that are actually bipartisan in their nature.”

Obama’s proposals call for reforming tax rules on trust funds, which the administration called “the single largest capital gains tax loophole” because it allows assets to be passed down untaxed to heirs of the richest Americans.

They also would raise the capital gains and dividends rates to 28 percent, the level during the 1980s Republican presidency of Ronald Reagan.

As a way of managing financial risk that could threaten the U.S. economy, Obama also wants to impose a fee of seven basis points on the liabilities of U.S. financial firms with assets of more than $50 billion, making it more costly for them to borrow heavily.

The changes on trust funds and capital gains, along with the fee on financial firms, would generate about $320 billion over 10 years, which would more than pay for benefits Obama wants to provide for the middle class, the official said.

The benefits mentioned on Saturday would include a $500 credit for families with two working spouses, tripling the tax credit for child care to $3,000 per child, consolidating education tax incentives and making it easier for workers to save automatically for retirement if their employer does not offer a plan.

The price tag on those benefits, plus a plan for free tuition at community colleges that Obama announced last week, would be about $235 billion, the official said. Specifics on the figures will be included in the budget Obama will send to Congress on Feb. 2.

“We’re proposing more than enough to offset the new incremental costs of our proposals without increasing the deficit,” the administration official said.

It should be noted that the majority of trust funds are formed by small business owners and entrepreneurs who work their entire lives to build security for their families after they’re gone. And now, Obama is proposing that the Feds swoop down and carve out more than a quarter of that lifetime effort. Reliable information on trust funds is hard to come by, but the most recent survey shows that half of trust funds (median) are worth below $285,000.

Of course, it’s not the amount, it’s the concept. Punishing people for wanting to give their children a decent life when they’re gone is morally repugnant — but perfectly in keeping with the president’s class warrior view of himself. Some people, in his view, just have too much money — even if they don’t — and deserve to have their wealth trimmed.

As for charging fees to big banks to ostensibly prevent them from borrowing too heavily, it’s a good concept — if the federal government wasn’t responsible for implementing policies that encourage reckless loans in the first place.

The benefits are largely uncontroversial. Throw out the community college giveaway and you have very popular proposals to increase the tax credit for working families with both parents employed and a tripling of the child care credit, which would be of great help to single moms.

But how do you pay for it? The president is insulting the intelligence of the American people if he says that the only alternative to funding these benefits is to raise taxes. Is he honestly saying that in a $4 trillion budget, he can’t find $32 billion a year in savings? Only 4 year olds and liberals believe that.

We are still running a $400 billion+ federal deficit. What good is a “revenue neutral” increase in spending when the deficit is at such an unacceptable level?

If every dollar appropriated by the Congress is necessary and prudent for the function of the federal government, we are in huge trouble. Taxes should not be raised until every dime of waste, unnecessary, bizarre, and fraudulent spending is excised from the budget.

That’s a no-brainer — which is why it would never fly in Congress.