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This Blog is maintained by Mike Barron, Executive Director and Founder of the New Independent Party. The views expressed here are not necessarily those of the Party, its Board of Governors or its Members.


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Comments on the State of the Union Address

With a day to think about it, I come  away from the State of the Union address with the feeling that it was mostly lightly veiled class warfare.

Take for example the proposal to tax those earning over $1 million a year at a minimum rate of 30% and to take away their deductions. Since those in this bracket who earn ordinary income are already paying the top marginal rate of 35% and have already lost many of their deductions, this plan is addressed at those like Warren Buffett and Mitt Romney who earn most of their income from investments. 

The odd thing is that President Obama mentioned earlier in the speech that America's corporate income tax rate is to high at 35%. Surely he must understand then that the income that these investors receive is taxed twice. It is taxed once at the corporate level and once at the personal level, which means that this group actually pays a top federal marginal rate of approximately 45%. If one includes state level taxes this number moves up well over 50%. If the President wanted to say that these people should pay taxes of more than 60% of their income from investments rather than 50%, he should have.  I don't think it would have quite as much popular appeal, but it would be honest.

It is possible, to give him the benefit of the doubt, that he would link lowering the corporate income tax to raising the capital gains and dividend tax rates on high income earners. But he never said that. If the President wants his rhetoric about governing for all Americans to be taken seriously, he needs to stop using the populist, class warfare approach and speak about taxation issues honestly.

Similarly the proposal to tax US corporations on overseas income, may sound like a winner to those who don't think the issue through. But surely he knows that US corporations don't have to remain US corporations. For those who do remain here paying these additional taxes will gradually squeeze these firms out of international markets, since they will not be able to compete for capital with firms in other countries who do not owe these taxes. Most countries in the developed world are moving in the other direction for precisely this reason. This is no secret.

With regard to his proposal to deny deductions to US firms that move their operations abroad and give tax credits to those who move operations to the US. This too is bad tax policy. It contorts an already contorted tax code even more. And it pushes US corporations to operate inefficiently to get tax benefits. This is not a good long-term strategy.

I can only think that his desire to give tax credits to manufacturing firms to the detriment of everyone else in the economy is driven by the fact that this benefits his allies in the labor unions disproportionately.

The increased spending on infrastructure would be fine, provided that he would agree not to require contracting rules that benefited unionized labor, which I doubt. I also fear the same motivation is behind his special task force on unfair trading practices from China. (not that there isn't some substance in those concerns.)

I could go on, but you get the drift. If one reads carefully between the lines his proposals are mostly about bad public policy that is meant to appeal to peoples envy of the rich and proposals to enrich his union constituency. This later motivation does appear to have been the driving force behind the auto industry bail out, that he touted last night.

When he does suggest a good public policy, like ending agricultural subsidies, he feels compelled to give it a class warfare twist by only ending them for the "millionaires."

I did find three proposals that I thought were unambiguously good:

1) Banning insider trading by members of Congress

2) Requiring the Senate to give an up or down vote on Presidential nominees in 90 days (although I'm not sure, operationally, how one would do that),

3) Making additional federal lands available for drilling (although his point on making frackers reveal their chemical components, seems gratuitous, since I think they already agreed to do this, recently.)

There were some other suggestions that were mostly air, like encouraging community colleges to coordinate with businesses, since, although it is a good idea, it is not really a federal issue.

There is a reason why the President had around an 80% approval rating when he took office: he promised to govern for all America. There is a reason why it is now in the 40's. He hasn't.



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