Barack Obama’s tax plan for proletarian families

And a real alternative that invests in middle class families.
Allan C. Carlson | Feb 5 2015 | comment  

obama preschoolPresident Obama with preschoolers in Washington. Source: US News and World Report

Conservatives of a certain temperament often try to pin the Socialist label on President Obama. The results are commonly facile and sophomoric.

All the same, it is useful on occasion to remember just what socialism entails. At its core, this ideology demands the elimination of every institution that stands between the individual and the collective, or state. Entities specifically targeted include private businesses and farms, churches, and families.

Regarding the latter, Karl Marx’s pal Friedrich Engels laid out the imperative in his 1884 book The Origin of the Family, Private Property & the State. Creation of the new socialist order, Engels wrote, demanded the deconstruction of marriage, a dismantling of home economies, free love, collectivized child care, and “the reintroduction of the whole female sex into the public industries.”

The list may sound vaguely familiar, for these were among the primary domestic policy themes to be found in Barack Obama’s 2015 State of the Union Address. However, in practice, his ideas will not lead us to the socialist paradise. In fact, the President’s new plan for “middle class tax relief”—a pillar of his agenda—would actually tend to lock affected American families into the servile status once called the proletariat.

What do I mean? To begin with, a true “middle class” has always been defined by something more than the mere median income figure that Mr. Obama seems to use. Analysts of the “middling class”—from Aristotle in the 4th Century B.C. to Charles Murray in the 21st Century A.D.—have shown that it embraces more coherent qualities: independence gained through the ownership of real property in land, dwelling, and capital; virtues such as delayed gratification, community mindedness, and personal responsibility; and maintenance of an autonomous home normally governed by a wife and full-time mother. For centuries, to climb into the middle class has meant to embrace these moral qualities and way of life. Specifically for women, it meant freedom from toil in the factories. Starting in the early 19th Century, the American labour movement aspired to lift its members into this status by gaining a “family wage” for workers, a goal largely achieved during the movement’s  glory years, 1945 to 1970.

Instead of favouring and protecting the middle class, Mr. Obama’s tax plan would further undermine its very foundation. It actually attacks family property, marriage, motherhood and fatherhood, the home economy, and children.

Ending loopholes – aka family "zones of liberty"

Let me be specific, and start with the hardest cases. The President claims that his plan would eliminate “the biggest loopholes that let the wealthiest avoid paying their fair share of taxes.” One proposal would subject certain bequests of capital in land, stocks, etc.,  to new capital gains taxation by eliminating the “stepped-up basis” now available to heirs. Another would eliminate the so-called “Romney loophole,” prohibiting individuals from accumulating more than $3.4 million in tax-deferred retirement plans and IRA’s.

Now, it is surely true that the U.S. tax code is riddled with inequities and unfairness, which could and should be rectified through a comprehensive tax reform and simplification. These two proposals, however, provide neither. Rather, they have clearly been chosen for political or demagogic advantage. Until that real reform takes place, I prefer to view such loopholes in a different way. About twenty-five years ago, I received a personal letter from the renegade libertarian economist Murray Rothbard, in which he praised all family-centered tax loopholes, whether used by all, most, or even just a few households. He called such loopholes “zones of liberty,” where families could shield some part of their assets and property from the rapacious state. Mr Obama is out to grab more property that is still in family hands; for now, at least, these particular assets should be left alone in existing zones of liberty.

Income splitting: marriage as a tax shelter

The Obama tax plan also targets marriage. Background is necessary. As progressive income taxation evolved in the United States after 1913, it soon became clear that strictly individualized  taxation—which paid no attention to marriage—contained a large “marriage penalty.” The solution was “income splitting” for married couples. Technically, it added together all taxable household income—whoever the source— and then split it down the middle, taxing each half separately, then adding the taxes due back together. In a system with progressive brackets, the result almost always was to reduce the taxation of married couples compared to a singleton with comparable total income.

Income splitting transformed marriage from a penalty zone into a tax shelter. The effect was greatest when a couple assumed complementary roles: the husband as breadwinner; the wife as mother and homemaker. This system also favoured the home economy, leaving real economic activity that occurred in the home—such as childcare, vegetable gardening, home-based food-preservation and home cooking—completely free of tax. Income splitting was the law of the land in the United States from 1944 to 1969, and clearly reinforced the “marriage-” and  “baby-booms” of the era.

Back to marriage penalties

In that latter year, a radicalizing Congress eliminated half of the benefit that married couples could derive from income-splitting; the inevitable result was another marriage penalty. The current Obama tax plan would deliver fresh kicks to the parent-at-home and the home economy: “a new $500 second earner credit to help cover the additional costs faced by families in which both spouses work.” In practice, this would undermine—in relative terms—much of what’s left of the positive effects of income-splitting. And, while the White House probably won’t admit it, tax theorists see such a credit as a way to tax indirectly the labor of a full-time mother—or father—at home. This has long been the holy grail of the social engineers, who want to see everyone doing taxable work, and so help feed the maw of the governing machine.

Childcare, tax credits, students loans

Mr. Obama’s tax plan would also further collectivize childcare in America by tripling the maximum child care credit to $3,000 per child. Group care is already heavily subsidized here, not only through the existing credit but also through tax credits to corporations that provide daycare centers and various means-tested welfare entitlements. And while necessary or a reasonable choice for many households, collective care is not best for the young. The social science evidence continues to show that small children are more likely to thrive—emotionally, physically, and mentally—when reared in their own homes (children in “welfare” families frequently excepted). Of course, couples making the sacrifices to provide that best form of care once again receive nothing.

Another component of the President’s tax plan would be to double the refundable Earned Income Tax Credit for workers without qualifying children and increase the income level at which it is phased out. Some reasonable economists favour this as a good form of wage-subsidy. Whatever the case, the virtue of the EITC from a social policy perspective was that it was originally tied to the presence of dependent children. It so served as an American version of the child allowances found in many European lands, albeit clearly linked to responsible work. The Obama plan moves away from that important linkage to children.

Still another part of the White House tax plan advances ways to reduce the burden of student loans on students, young adults, and parents. From a family perspective, this is a serious and mounting problem. There is strong evidence that this form of debt is discouraging marriage and childbearing among those in its thrall. However, the Obama plan would do little to aid the children of the existing middle class, and nothing to confront the bloated college and university budgets and administrations that thrive on this wayward system.

In short, Mr. Obama’s proposals—far from helping families—would further damage or diminish family property, marriage, complementary motherhood and fatherhood, the home economy, and children. It would leave still more Americans trapped in “the servile state,” Hilaire Belloc’s apt description of propertyless households existing on a mix of wages and welfare benefits.

Proposals to really strengthen the middle class

Fortunately, a tax policy alternative that would strengthen a real American middle class exists:

  • Return to income-splitting. While the current Administration plan would further diminish and confuse the tax benefits of complementary marriage, the Canadians are moving in the opposite direction. Yes, even up in the holy land of socialized medicine, the Harper government has recently proposed to restore a version of income-splitting. It would let couples with children under age 18 to shift up to $50,000 in income from one spouse to the other to gain the lowest possible tax rate on that sum. In the States, we need simply go back to the pre-1969 law.
  • Increase the Existing Child Tax Credit to $3,000 per child and remove income-based restrictions on its availability. This approach recognizes the value of children to the commonwealth, yet gives maximum choice to parents on how to spend their money to sustain their family. 
  • Extend a Dependent Care Tax Credit to stay-at-home parents with young children. As proposed a few years back in “The Parents’ Tax Relief Act of 2007,” Congress could grant a credit of up to $250 per month to families that make the financial sacrifices to keep a parent at home.
  • And, most shockingly, relieve each new parent of $5,000 of federal student loan debt for each child born within their marriage. The government needs to undo the damage to existing and potential families that the government has caused.

Borrowing words from a White House FACT SHEET, these policy ideas represent the honest path to “a fairer tax code that responsibly invests in middle class families.”

Allan Carlson is the President of the Howard Center for Family, Religion and Society. This article was first published in The Family in America journal. Dr Carlson’s latest book is The Natural Family Where It Belongs: New Agrarian Essays, available in paperback this February from Transaction.

Copyright © Allan C. Carlson . Published by You may download and print extracts from this article for your own personal and non-commercial use only. Contact us if you wish to discuss republication.

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