State of Union

President Obama will deliver the State of the Union address tomorrow. It will be the first time he addresses a joint session of Congress in Republican hands. With two years left in his administration, it appears America will be denied the transformative figure they were promised. As usual, Obama will settle for small ball.

What the country needs most right now is a complete overhaul of the tax code. It is an accepted part of the social contract to redistribute wealth. The tax code should be progressive, but it shouldn't be engineered to dole out favors to politically important constituents. The goal should be to maximize revenues while allowing the economy to grow as fast as possible.

It is reported that Obama wants to raise the tax on capital gains. This tax is equivalent to eating our seed corn. Capital gains that are taxed are not available for further investment, and that drags growth. Obama knows that raising the rate will not necessarily increase revenues. Presidents Clinton and Bush both lowered the capital gains tax rate, and revenues rose.

Obama justifies this in the name of fairness.

The President also wants to "close the trust fund loophole," whatever that is. It sounds like an increase in the death tax. This is also known as double taxation. All earnings are taxed before they enter the estate, unless they are tax deferred, in which they are taxed upon death, regardless of the size of the estate.

Obama wants to offer free community college to everyone who wants it. Sounds like a great idea. However, public school per-student spending is already astronomical, and a staggering proportion of high school graduates will need remedial instruction just to get where they should have been when they graduated.

Another item on the President's wish list is paid leave. Federal employees already accrue paid leave that they can apply toward sick days or for the care of a family member or for the birth of a child. I guess he is going to ask Congress to pass a law mandating private businesses to do the same?

Will Democrats ever grasp the fundamental law of economics? When you make something more expensive. less of it will be demanded. The market for labor is no different from the market for petroleum distillates, cable tv, or ground beef. If ground beef suddenly cost fifty dollars a pound, nobody would buy it. If a small business is compelled to accrue paid leave for existing employees, the business will have to find a way to pay for it. Very often that is done by replacing labor inputs with capital inputs.

Lastly, I expect the President will lie to America and say that negotiations with Iran are about to produce a breakthrough. Keep kicking that can, Mr. President.