A proposal President Obama announced in his 2015 State of the Union address in late January would increase taxes on some taxpayers by $320 billion, offsetting tax relief measures he says are targeted at middle-class Americans.
However, Americans for Tax Reform Policy Director Ryan Ellis says the proposals will not bring much tax relief.
By Any Other Name
“Much of what they would term as ‘tax relief’ takes the form of expanding the Earned Income Tax Credit, and expanding the Additional Child Tax Credit. By definition, you’re not engaging in tax relief anymore, because those people now don’t have a tax liability,” Ellis said.” What you’re engaging in is outlays, which is another way of saying ‘spending’—and that’s the way it’s going to be scored.”
“I would not be surprised, at all—once we have the hard numbers, so we can verify it and give it a good, honest look—if it ends up being a net tax increase,” he said.
Ellis said Obama’s proposed change to the federal estate tax amounts to “trying to have his cake and eat it too.”
‘Second Death Tax’
“Let’s say you have somebody who buys a piece of property for $10,000, and it grows to be a $1 million property, and then he dies,” Ellis said. “Well, what do you do with all that wealth he gained? He never sold the property, he died owning it, right?
“Under the president’s proposal, instead of the basis of the property being the $1 million it was worth on the day his dad died, the basis is the $10,000 it was [worth] when his dad bought it. So if he sells it for $1 million when his dad dies, he has to pay the capital gains tax on that gain,” he said.
“The death tax is intended to capture unrealized capital gains. It’s like a backstop to the capital gains tax, to put a policy rationale behind it. This is a second, redundant death tax. It’s a second death tax that uses the capital gains tax,” Ellis concluded.
Jumpstart the Middle Class?
Ellis suggests a simple way the president could jumpstart middle-class economic growth instead of imposing the proposed tax hikes.
“Using the tax system, one thing he could very easily do would be allowing all businesses to fully expense the cost of their investments, in the first year,” he said. “The tax code—if you’re a very large business—doesn’t allow you to simply write off the cost of that computer in the year you bought it. You have to do what’s called depreciation. It’s like a slow deduction over—in the case of a computer—five years.”
Allowing businesses to engage in “bonus depreciation,” Ellis said, “would really, really encourage businesses to invest in new equipment, which is—as we’ve found over many decades now, when we’ve done this from time to time in the tax code—really good at encouraging productivity growth.
“Productivity growth is, ultimately, the source of higher wages and standards of living,” he said.
Dotty Young ([email protected]) writes from Ashland, Ohio.
“Does the Estate Tax Raise Revenue?” B. Douglas Bernheim, http://heartland.org/policy-documents/does-estate-tax-raise-revenue/