In the midst of the Greek chorus demanding that everyone salute in awe and reverence to the tax proposals set to be unveiled in stage-managed "don't actually look behind the curtain" fashion, it's worth a pause to consider what these ideas mean in the big picture of class warfare and the crumbling of the country: meek stuff, clearly driven by the very Democratic/liberal pollsters who got the country into the mess in the first place by being cowards, a bit discriminatory and just long-term...bleh...
Perhaps to calm down the true believers and hard-core Greek chorus members, it's worth saying three things, a bit on the substance and a bit on the politics.
1. The capital gains tax changes are a step in the right direction. As the Institute for Taxation and Economic Policy rightly says:
The centerpiece of Obama’s plan is a proposal to raise substantial new revenues by closing the long-lamented, and rarely defended, “stepped up basis” rule for capital gains. Stepped up basis means that when stocks and bonds (among other assets) are not sold during the owner’s lifetime, no income tax will ever be paid on the (unrealized) capital gains income created during the owner’s lifetime. When the heirs who are gifted these capital assets sell them, they will pay not a dime of tax on the often-huge capital gains that accrued prior to the time they inherit.
Obama’s proposal would treat the transfer of these untaxed capital assets to heirs as a potentially taxable event. This sensible step would remove what is called the “lock-in effect” of the current system, which encourages wealthy owners of capital assets to hold on to them until death to avoid paying tax on their (unrealized) capital gains. Notably, the proposal would actually leave stepped-up basis intact for many heirs of smaller estates, since it would allow capital gains of up to $200,000 to be passed on tax-free for a married couple (half that for a single taxpayer). On top of this, the proposal would allow a $500,000 exemption for the value of homes passed on to heirs. While complete elimination of stepped-up basis would be a more straightforward and welcome reform, the half-step toward reform taken in Obama’s draft plan would sharply curtail one of the least justified tax dodges in existence today.
Taken on its own, ending stepped-up basis is only a starting point toward the laudable goal of taxing wealth like work. This is because even repealing stepped up basis would leave intact the stark difference in the top income tax rate on wages (currently 39.6 percent) and capital gains (20 percent). Happily, Obama’s draft proposal would mitigate (but not eliminate) this tax break by increasing the top tax rate on capital gains and dividends to 28 percent.
Ok, check. Good thing...
2. Sure, a smidgen of tax cuts for lower income people is a good thing...with a caveat to come.
3. Sure, even these proposals, as meek as they are, have no chance of passing the Republican Congress so, the Greek chorus would argue, there's no point in proposing anything more fundamental.
Now, another view. First, the proposals do fit well with this president, the donor-driven main bloc of his party and the pollsters that drive all the thinking (if you want to refer to it as "thinking", as opposed to groping around to measure the size of your campaign wallet) within the party. The pollsters have quickly captured the attention of the chattering political classes, arguing that the recent election results are a result of paying too much attention to poor people and not enough attention to the "middle class".
I think the losses had less to do with attending to the "poor" as it was about the lack of vision and courage.
A party that went around and pushed a pathetic $10.10-an-hour hike in the federal minimum wage had no chance of rallying the country around the basic principle that the “free market” has robbed us all...however you define "poor" or "middle-class".
It is because $10.10-an-hour will not allow people to make a fair living, or challenge the basic, “We-make-profits-thanks-to-poverty” system that underpins today’s real world economy. It had no chance of rallying the country around the basic principle that the “free market” has robbed us all...however you define "poor" or "middle-class". And, by the way, the $10.10-an-hour idea is being swamped by campaigns starting advocacy at $15-an-hour (I have advocated for $20-an-hour...because that's actually what the minimum wage should be at, when you use a bizarre thing called math)
People can do the math. Historically, the "middle-class" supported, broadly, programs that benefited what we think of as the "poor" WHEN those were visionary and showed a large section of the people, across incomes, that what was being done would fundamentally reshape the country.
So, now, rather than have a larger vision of a different economy that buries the so-called "free market" in favor of a more sustainable model, we have a few bones thrown to the "middle-class".
A brief note on the issue of discrimination: I know this is almost un-American to say but...did anyone notice that 50 percent of Americans are single? Not married, not with children. Where exactly is the fairness to half the people in the country?
Truth is, we shouldn't be giving tax cuts out at all. They won't solve the problems we face. Sure, it will give the illusion of helping but we've seen this movie before--with tax credits doled out--yet, wages are still declining, people are less secure, health care is still outrageously expensive and pensions don't exist.
Truth is, our taxes are not high. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980.
The problems are about WAGES and INVESTMENT, particularly public investment in our infrastructure.
We should be:
1. Raising corporate taxes because U.S.-based companies pay low taxes relative to the world and higher taxes do not hurt competitiveness.
2. Raising the top income tax rates to 40 percent and 45 percent and add a top rate of 50 percent for those people with taxable income higher than $1 million.
3. Taking that added revenue and rebuilding the country which needs, according to the American Society of Civil Engineers, needs $3.6 trillion by 2020 just to bring the country's bridges, roads, tunnels, water systems and the rest just back to a solid place--not to mention what is needed to raise infrastructure to address climate change.
4. Guaranteeing everyone a minimum government IRA-type pension because increased savings is a must.
5. Guaranteeing a minimum annual income.
6. Fully funding a single-payer system to replace the ACA--which still hands over tens of billions of dollars to insurance companies and drug companies.
And...on and on...
But, that's not what the pollsters say.
So, the proposals are mostly optics (with the exception of the slight good step forward on capital gains), mostly poll-driven politics and very, very, very short on long-term changes in the economic fortunes of the country.
By the way, I did not expect anything more. This president is who he is: a person very comfortable with the "free market" (see: Trans Pacific Partnership) who is looking to curb the "excesses" he sees. And, to be slightly harsher, the few dollars he throws to the lucky married people with children will be, eventually, taken away because of bad trade deals that undercut wages for all, health care costs that are still too high through the ACA and a badly, inefficient crumbling infrastructure.
That's it, folks.
Now, please return to the orchestrated applause.