White House officials have leaked a preview of President Obama’s State of the Union speech. ABC News described the centerpiece of the president’s wish list: “Obama to Propose Capital Gains Tax Hikes to to Benefit Middle Class.” Specifically, Obama will propose raising the top capital gains rate from 20% to 28%. This would be paired with increasing inheritance taxes and imposing new taxes on banks. How will all of this benefit the middle class? The administration says its proposals will raise $320 billion in new tax revenue, which will fund $235 billion in new spending, consisting of $60 billion for “free” community college and a potpourri of tax cuts, credits and welfare benefits for which lower and middle income people would be eligible.
The Democrats could have enacted these tax increases when they controlled both houses of Congress during the first two years of the Obama administration, but they didn’t. From an economic standpoint, they are a terrible idea, and they would also discomfort the Democrats’ rich supporters, who have prospered during the Obama administration even as average Americans have suffered. The Democrats don’t want the tax increases actually to happen, they just want to blame Republicans for not enacting them–just like the Democrats didn’t enact them when they had the opportunity.
Obama’s newfound concern for the middle class is touching, but a little late. He has been president for six years, and his administration has been a disaster for middle-income Americans. The numbers are grim:
Since the Senate Democratic Class of 2008 took control, the average real income of the poorest one-fifth of American families has declined every year, falling to $15,534 in 2012 from $16,962 in 2008 (the 2013 data will be released Sept. 16). The average real income of the lowest quintile of Americans is now below the level it was in 1968, the year when the War on Poverty began its spending surge.
The next-highest income quintile, often referred to as the working class, has also experienced a continuous decline in real income since January 2009. The average income of these Americans has fallen 6.5% and is now $1,182 lower than it was when President Reagan left office.
The third quintile—America’s middle class—has seen its average income decline to $62,464 from $65,672. More than half of this decline has occurred since the recovery officially began in the second quarter of 2009.
Given his terrible record, for middle class Americans to take guidance on the economy from Obama would be like seeking advice on neurosurgery from Dr. Frankenstein. There is no mystery as to what most Americans need: a growing economy that provides good, full-time jobs with opportunities for promotion. Economic growth is what really matters; everything else is mostly distraction. And if there is one thing we know for sure, it is that the Democrats’ recipe of ever-higher taxes, cronyism, stifling regulations, New Class hostility to actual wealth creation (as opposed to, say, app development), and concentration of unprecedented power in government is poison to economic growth.
Republicans should brush Obama’s proposals aside as the demagogic political ploy that they are. Taxes are plenty high enough, and upper income taxpayers pay a disproportionate and constantly growing share of them. Republicans should cast the Democrats’ distractions aside and implement the conservative principles that, experience shows, will lead to sustained economic growth.