Romneys Mitt, Ann, Tagg, Matt, Josh, Ben, and Craig, watch out! Barack Obama is coming for your bank accounts.
Tonight, at his State of the Union address, the president will announce a plan right out of Sherwood Forest, taking from the rich to give to the poor. Lower-income families would benefit from expanded child-care credits, a $500 bonus for a family’s second earner, and a bigger earned-income tax credit, among other provisions. High-income families would see their tax-subsidized retirement plans get capped, their long-term capital-gains tax rate shoot up, and the closure of a loophole that hugely reduces the taxes on certain estates.
Reading the early details of the proposal, it’s not hard to see the name “Romney” written between the lines. When he ran for president, Mitt released far less tax documentation than candidates normally do — but he released enough to show that he paid just $2 million on his 2011 investment income of $14 million. Obama’s plan would hike that tax bill considerably, by raising rates on capital gains and dividends.
It would also target Romney’s very, very unusual individual retirement account. The Internal Revenue Service currently allows savers to add $5,500 a year to their IRA, or $6,500 if you are 50 or older. Romney somehow accumulated between $21 million and $100 million in one, a feat he likely managed by stuffing it with privately traded assets he was sure would appreciate in value. (It seems vanishingly unlikely that he would be able to make that much money by buying and selling publicly traded stocks in the account.)
With its proposal to limit the value of such accounts to $3.4 million, the White House seems to be taking square aim at Mitt. “Tax-preferred retirement plans are intended to help working families save for retirement,” the White House said in a fact sheet released in advance of the speech. “But loopholes in the tax system have let some wealthy individuals convert tax-preferred retirement accounts into tax shelters.” Oh, snap!
Finally, there’s a proposal that would hit the Romney children of the world, who stand ready to inherit truly massive sums of money from their one-percenter parents. Let’s say that your rich grandfather made an investment for $100,000 some time ago. He left it to you before passing away. You decide to sell the investment immediately, for $1 million. How much tax do you pay? Zilch. Your grandfather never paid any capital-gains tax on the asset, and you are not expected to pay any either. That’s a huge loophole, one that allows hundreds of billions of dollars of capital gains to go untaxed every year, primarily benefiting the very rich.
Taken together, these proposals and others would not just take aim at the wealthiest earners in America. It would take aim at dynastic wealth — the accumulation of investment assets and their light-tax passage to the next generation. It is a timely concern, one thrust into the spotlight last year by Thomas Piketty and his surprise best-seller on inequality, Capital in the Twenty-First Century. Right now, American wealth inequality is primarily driven by American income inequality. Big earners purchase houses, stocks, businesses, and other assets that swell in value over time. Inheritances don’t actually figure much into the equation. In fact, wealth transfers as a proportion of overall net worth have fallen from 29 percent in 1989 to 19 percent in 2007. But in the future, inherited wealth stands to become a bigger and bigger deal, as all those corporate executives like Mitt pass away and pass their money on. Accenture, the consulting firm, anticipates a wave of transfers totaling more than $10 trillion coming in the next decades.
That means Obama’s proposal would not just tax Romney more heavily today, it would limit his ability to create dynastic wealth for his heirs. Robin Hood, I think, would approve.