On October 30, 2008, Barack Obama, sensing victory in the upcoming election, said with characteristic self-effacement that “We are five days away from fundamentally transforming the United States of America.” A good many people (but not enough, alas) wondered why the most successful country in the history of the world needed to be transformed at all, let alone fundamentally.
Which is not to say that the country didn’t need reform in many areas, beginning with the federal government itself. It had not been reorganized since the Truman era, which predated the electric typewriter let alone the digital revolution. The barnacles of decades of congressional piecemeal action had produced a bloated, duplicative, inefficient mess. The budget process needed to be reformed in order to get control of the government’s finances. Social Security and other entitlement programs needed to be reformed before they went broke or bankrupted the country. The tax system had metastasized over the previous century into an incoherent, arbitrary, and deeply unfair quagmire that benefited only politicians’ reelection efforts and those able to make large political contributions to them in exchange for favorable treatment.
But Barack Obama sought reform in none of these areas, instead just pushing the tired old liberal agenda and for the most part getting nowhere with it. Instead of reforming the budget process, he and his Democratic allies in Congress totally ignored it and there has been, quite literally, no budget process for the last six years, just a series of continuing resolutions. His only reform for entitlement programs was to add a new one, pushed through Congress with the very old-fashioned use of political muscle over the howls of both the opposition and the people in general. ObamaCare remains deeply unpopular.
As for taxes, his one idée fixe has been to raise taxes on the rich, an idea that goes back to the 1840s. Consider his proposal regarding inherited property, to be unveiled in the State of the Union speech this Tuesday. It calls for heirs to inherit not only the property but also the original cost basis of the property, subjecting it to far higher capital gains taxes when the heirs sell it. As it stands now, the heirs’ cost basis is the price on the date of death.
But the heirs of large estates would have already paid as much as a whopping 40 percent under the estate tax, which is nothing more nor less than a capital gains taxes triggered by death instead of sale. Obama also wants to raise the capital gains tax to 28 percent, so the total tax take might be as high as 56.8 percent. But many capital assets, such as real estate and shares in a company founded by the decedent, are held for decades and the capital gains and estates taxes are not indexed for inflation.
So much of the value taxed away would be illusory, a tax on phantom gains. An investment worth $1 million in 1970 would have to be worth $6.1 million today for there to be any real gain at all. That won’t stop the president from calling his proposal “fair” and “the right thing to do.” It is, of course, neither, just the same century-old leftist, stick-it-to-the-rich boilerplate.
Fortunately these proposals have zero chance of getting through the new Republican Congress. Still, it’s going to be a long two years until January 20, 2017, a date that will mark what my new favorite bumper sticker calls ‘The End of an Error.”