“A brighter future is ours to write,” President Obama said in the State of the Union address. But the proposals Obama made in the speech certainly won’t foster a new Morning in America–and they might even prevent one. The failure here lies not so much in the plan but in the presidential emphasis on engineering economic growth.
The fact is that a brighter future is never ours to write. As irritating as it may seem, the biggest opportunities tend to just happen to the country. The only thing lawmakers can do is leave enough freedom in the business or personal sphere that people, especially the middle class, are in the frame of mind to exploit those opportunities.
Consider recent waves of breakthrough growth. The fracking boom surprised even the sagest Texas energy hand. The Internet? Likewise unpredicted. Before that, there was the unawaited blockbuster of personal computers, a gift to the working class matched only by one other in memory–the indoor toilet.
The 2015 White House proposals leave scant play space for such serendipity. The President, for example, affirmed his veto of the project that is most likely to expand the energy boom, the Keystone pipeline. The capital-gains tax is the closest thing we have to a direct tax on enterprise. The President would increase its top rate to 28%. Just for good measure, the White House also advocates a dividend tax hike.
To defend itself, the White House notes that Reagan himself permitted the capital-gains rate to go up to 28%. What the White House does not mention is that the revenues from that 1986 hike fell short. The same disappointment is likely to await Obama.
But his plan for what to do with the revenue derived from all those one-time increases is where the President errs the most. The money is allocated for a $150 billion infrastructure improvement–part of which, in theory, might have a beneficial spillover effect. Highway construction, for example, in the style of Dwight Eisenhower, could indeed improve the stage upon which commerce occurs. But most infrastructure promises end up splintering into political miniprojects. And there’s a great arrogance in assuming that such an outlay would actually be worth the cost. The stimulus program with which Obama debuted in 2009 certainly wasn’t.
Some of the President’s proposals for the middle class sound nice–for instance, free community college, though it won’t be truly as “free” as the White House suggests. Still, what happens postcollege is what really matters. And what defines the middle class is the aspiration to rise to the upper middle class or (horrors) the ranks of the well-to-do.
The Obama plans hit such aspirants hard. The plans fail to remove a marriage penalty of tens of thousands of dollars, offering only a small joke of a credit for lower-earning couples. Even more damaging is the President’s plan to kill the “step-up in basis” for inherited wealth. Some nonrich families have a second home somewhere in the woods. Obama’s plan would force many children to sell such a house to pay the taxes due upon a parent’s death.
It’s easy to understand why President Obama tries to design his booms. By training he’s a lawyer, not a businessman. In his engineering habit he also resembles the engineer Jimmy Carter or the “father of the Internet,” Vice President Al Gore, who chased innovation rather than facilitating it. Conflicts abroad reinforce Obama’s authoritarian tendencies. Segueing from the necessary job of Commander in Chief to redistributor in chief feels natural.
What might the President do to make that true Morning in America possible? First: Support Keystone after all.
Second: Push hard to make a currently temporary research-and-development credit permanent.
Third: Join Congress and cut the capital-gains tax permanently.
Finally: Permit citizens to partake of any coming boom by replicating Canada’s tax-free savings accounts. The TFSAs, a more generous version of the U.S. Roth IRAs, enable citizens to save more and to take their money out without penalties.
To do all this, the President would have to open an eye to the curious and unpredictable nature of growth. Six years into his presidency, he hasn’t. So yes, great opportunity lies ahead. The trouble is, our leader is preparing to squander it–and by accident.
Shlaes, who chairs the board of the Calvin Coolidge Presidential Foundation, is the author of The Forgotten Man: A New History of the Great Depression and Coolidge
This appears in the February 02, 2015 issue of TIME.
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