Obama’s Tax Proposals: A Libertarian Analysis
By Laurence M. Vance
For those of you who did not watch President Obama’s State of the Union address, you can read a transcript here, as I have. I neither watched it nor the five earlier addresses he gave. And neither did I watch any of Bush’s State of the Union addresses. Actually, I have never wasted my time watching any president’s State of the Union address.
I have always loathed Obama for his radical associations, his life spent in the service of racial preference, his aberrant Christianity, and his belief in the redistribution of wealth. I loathed Obama when he was in the Senate for being one of the most radical left-wing Senators in history. And I have loathed him as president for his corporatism, warmongering, contempt for the Constitution, Obamacare, and expanding the welfare/warfare/national security/surveillance state. In fact, if you substitute Bushcare (the Medicare Prescription Drug, Improvement, and Modernization Act of 2003) for Obamacare, these are the same reasons I loathed George W. Bush.
This does not mean, however, that we should just dismiss outright all of the proposals Obama made in his State of the Union address—and especially those that relate to taxes.
It should be remembered that as part of a deal to extend the so-called Bush tax cuts, which were due to expire at the end of 2010, Obama signed into law the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act” (TRUIRJCA) that not only extended the current tax brackets for two years, but reduced the employee share of the Social Security payroll tax by 2 percent for one year. In one of his radio addresses in August of 2011, Obama proposed extending the temporary Social Security payroll tax cut for another year. Surprisingly, Republicans weren’t too enthusiastic about the idea. The rate cut was eventually extended until the end of 2012.
So, instead of being summarily dismissed, Obama’s tax proposals need to be subject to a libertarian analysis. Not a liberal, conservative, Democratic, Republican, progressive, centrist, or moderate analysis, but a libertarian one. A libertarian analysis is not based on whether a particular proposal makes the tax code more or less progressive, is revenue neutral, closes loopholes, raises taxes on the rich, makes sure everyone pays their fair share, simplifies the tax code, expands refundable tax credits, helps the poor, benefits the middle class, decreases income inequality, increases government revenue, or relates to the Laffer curve. These are some of the things an analysis by the above groups would be based on.
A libertarian analysis, on the other hand, is based on certain libertarian axioms of taxation:
The best tax is always the lightest. ~ Jean-Baptiste Say
There cannot be a good tax nor a just one; every tax rests its case on compulsion. ~ Frank Chodorov
Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. ~ Murray Rothbard
There can be no such thing as “fairness in taxation.” Taxation is nothing but organized theft, and the concept of a “fair tax” is therefore every bit as absurd as that of “fair theft.” ~ Murray Rothbard
Since the very fact of taxation is an interference with the free market, it is particularly incongruous and incorrect for advocates of a free market to advocate uniformity of taxation. ~ Murray Rothbard
A deduction or exemption is only a “loophole” if you assume that the government owns 100% of everyone’s income and that allowing some of that income to remain untaxed constitutes an irritating “loophole.” Murray Rothbard
The real issue is total spending by government, not tax reform. ~ Ron Paul
Does it reduce or eliminate an existing tax? ~ Lew Rockwell
Any decrease in taxes or tax rates is a good thing and any increase is a bad thing and any increase in tax deductions or credits is a good thing and any decrease is a bad thing. ~ Laurence Vance
So, what are Obama’s tax proposals? In his State of the Union address, the president didn’t say much about taxes:
Middle-class economics means helping working families feel more secure in a world of constant change. That means helping folks afford childcare, college, health care, a home, retirement – and my budget will address each of these issues, lowering the taxes of working families and putting thousands of dollars back into their pockets each year.
My plan will make quality childcare more available, and more affordable, for every middle-class and low-income family with young children in America – by creating more slots and a new tax cut of up to $3,000 per child, per year.
As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways the superrich don’t need, denying a break to middle class families who do.
Let’s close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America. Let’s use those savings to rebuild our infrastructure and make it more attractive for companies to bring jobs home. Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford. And let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth. We can use that money to help more families pay for childcare and send their kids to college. We need a tax code that truly helps working Americans trying to get a leg up in the new economy, and we can achieve that together.
The $3,000 child tax credit was the only specific thing the president said about taxes in his State of the Union address.
However, just a few days before, the White House issued a Fact Sheet on the president’s tax-reform proposals. They consist of:
Increasing the top capital gains tax rate to 28 percent.
Eliminating the “stepped-up” basis on assets that lets bequests go to heirs without being subject to capital gains tax.
Imposing a 0.07 percent tax on the liabilities of financial firms with assets over $50 billion.
Instituting a tax credit of up to $500 for families in which both spouses work.
Making permanent the expansion of the Earned Income Tax Credit and the Child Tax Credit from the stimulus package.
Expanding the Earned Income Tax Credit and increasing the income level at which the credit phases out for workers without children and noncustodial parents.
Tripling the maximum Child and Dependent Care Tax Credit to up to $3,000 per child for families with children under five and making the full credit available to families with incomes up to $120,000.
Repealing the student loan interest deduction for new borrowers.
Taxing the earnings portion of funds withdrawn from 529 education savings plans.
Eliminating the Hope and Lifetime Learning education tax credits.
Eliminating the tuition and fees tax deduction.
Making permanent and expanding the American Opportunity Tax Credit by making it available to part-time students, allowing taxpayers to claim the credit for five years, excluding the value of a student’s Pell Grant from modified adjusted gross income, indexing the credit to inflation, and increasing the refundable portion of the credit to $1,500.
Exempting the value of forgiven student loans from taxation.
Capping the total amount at $3.4 million that an individual can accumulate in IRA and 401(k) type accounts.
Instituting a tax credit of between $1,500 and $4,500 for employers offering new or auto-IRAs.
Subjecting these proposals to a libertarian analysis yields the following.
Because all new taxes are always bad, the tax on banks and the tax on 529 plan withdrawals should not be imposed.
Because increased tax rates are always bad, the capital gains tax rate should not be raised.
Because tax deductions are always good, the student loan interest deduction should not be eliminated.
Because new tax credits are always good, the $500 credit for families and the credit for employers offering IRAs should be instituted.
Because existing tax credits are always good, the temporary expansion of the Earned Income, Child, and American Opportunity Tax Credits should be make permanent.
Because existing tax credits are always good, the Hope and Lifetime Learning education tax credits should not be eliminated unless they truly are superseded by an expanded American Opportunity Tax Credit.
Because higher tax credits are always good, the increase in the amount and expanded availability of the Earned Income Tax Credit and the Child and Dependent Care Tax Credit should be instituted and the American Opportunity Tax Credit should be indexed to inflation.
Because refundable tax credits are a form of welfare, which is always bad, the refundability of the Earned Income Tax Credit and the American Opportunity Tax Credit should be eliminated.
Because paying more in taxes is always bad, the “stepped-up” basis on assets should not be eliminated and the amount an individual can accumulate in an IRA should not be limited.
Because excluding or exempting anything from taxation is always good, the value of Pell Grants should be excluded from income and the value of forgiven student loans should be excluded from taxation.
It is that simple.
So, what should the Republicans do? They claim to be for lower taxes. Here is their chance to prove it.
The Republicans should neither increase an existing tax nor institute a new tax—any tax for any reason. They should neither eliminate nor reduce a tax deduction or credit—any deduction or credit for any reason. They should pass a standalone bill for each one of the president’s tax proposals that keeps or increases money in the pockets of Americans and out of the hands of Uncle Sam. They should not fall for the trick of trading something for a tax increase or deduction/credit decrease of any kind.
What will the Republicans do? Judging from their poor track record for the past sixty years they will certainly blow their opportunity. Like bundling a new tax credit with an attempt to repeal Obamacare that will obviously be vetoed. I hope I am wrong. But they don’t call the GOP the stupid party for nothing.