President Obama released his blueprint for the federal budget Monday. Unsurprisingly, it is expected to boost federal spending far higher than recent years.
His tenure has already witnessed a greater accumulation of federal debt than any other time in US history. It is unsustainable based on the nation’s taxing traditions. In recent days, however, Obama has hinted at a new paradigm in federal revenue collection: confiscation.
Last week, the White House floated a proposal to levy a one-time tax on the $2 trillion in foreign earnings American corporations have overseas. The United States imposes the highest corporate income tax rate in the world. It also, unlike every major nation, taxes profits on business activities conducted completely outside the US. In essence, the US tax code follows American citizens and corporations anywhere they travel around the world.
As a result of these two quirks, American corporations have built up $2 trillion of unrealized earnings, parked in bank accounts around the globe. There have been numerous proposals for a kind of “tax holiday,” allowing these profits to be brought back into the United States at a lower tax rate than the existing corporate tax. This has been done at other times in our history, but the plans have met stiff opposition from the Obama White House.
Obama’s new plan would simply confiscate 14% of these foreign earnings, regardless of whether or not the money was brought back into the country. In future years, Obama would impose a 19% tax on all foreign earnings as they are earned. Worries about such tax proposals are a large reason why iconic US companies like Burger King, for example, are now foreign corporations.
Obama would use this one-time confiscation to plug a hole in the federal Highway Trust Fund. This idea is similar to the now-discarded White House plan to confiscate money from “529” education savings plans to fund a new entitlement to education at community colleges.
Some wags may protest that the plan to tax 529 savings accounts isn’t technically a confiscation, but imposing a tax on earnings that were specifically intended to be exempt from taxation is confiscation in everything but name. The White House backtracked from that proposal as it became clear the middle class was going to take a hard economic hit.
These twin proposals reveal the next front in the progressive plan to reshape American policy. The spending and dreams of new federal entitlements can’t be funded by anything like the traditional income tax. Tax rates for the highest incomes are already at 40%. Rates above this level will likely spark widespread tax avoidance plans from the very wealthy, minimizing the revenue gains to government.
Through hard work, innovation and financial discipline, though, Americans have accrued a great deal of wealth. The money Americans have saved in their IRA plans dwarfs both overseas corporate profits and the relatively new “529” education plans. These recent White House proposals are simply the first steps in the progressive plan to tax the country’s accumulated wealth.
The current tax code can never fully fund the stuff of progressives’ dreams. The proposals to confiscate overseas profits and education savings are simply the first salvos in a new fight on greatly expanded government revenue powers. The government wants a piece of every last dollar.