Breach of Trust

Nations work best with reliable rules and laws that apply equally to all. These give people the trust and confidence to plan, build, make decisions and invest, free from fear that some greedy ruler on a whim will expropriate their property or confiscate their savings.

Since ancient Rome this ideal was a "government of laws, not men," in which the same rules impartially applied to all. The problem, as Juvenal wrote, is that governments are administered by human beings. What happens when the guardians, given vast powers to enforce the law fairly, become unfair and unjust?

What happens, for example, when a President intervenes in the bankruptcy proceedings of General Motors and Chrysler, slaps aside laws and legal precedents that for more than 200 years gave secured bondholders a significant share of remaining company value, and gives $26 Billion that should have gone to these bondholders and others instead to a labor union that has been a major campaign contributor to that President and his political party? [1]

MIT Economics Professor Jonathan Gruber, who was one of the major architects of the President's largest piece of legislation, the Affordable Care Act known as Obamacare, is seen on videotape boasting at various academic meetings about how the law was passed by deceiving and lying to the American people about what it would cost them. This was possible, he brags, because of the "stupidity" of most Americans. [2]

In our time such breaking of ethics, rules and laws has become commonplace. Immigration and other laws have been cast aside to benefit special interests. Politicians have used eminent domain laws to take the private property of some so it can be given to other private owners with better political connections. Tax laws are applied unequally to favor those of the ruling party and to punish its opponents. Environmental laws are used to advance ideological agendas and to crush private enterprises.

As we document in our latest book Don't Bank On It! The Unsafe World of 21st Century Banking, today banks are being shaken down for tens of billions of dollars in arbitrary fines and penalties, and much of this money has been transferred to radical activist organizations.

The President and his appointed Attorney General, the nation's chief law enforcement officer, have repeatedly defied congressional subpoenas and court orders by federal judges. And the president boasts that if Congress refuses to give him the laws or funding he wants, he will impose his will via Executive Orders, regulatory rules and fines from agencies in his Executive Branch. He behaves as if he is a king, not a president with limited powers who swore to faithfully uphold the Constitution.

In a mere six years, this president's profligate spending has increased America's debt by more than $7.5 Trillion. America's total short-term debt has topped $18 Trillion on its way to $20 Trillion. Yet in January, he demanded another $74 Billion above the spending caps he had agreed to.

The worst deficit the President has created, however, is a deficit of trust....a breach of trust and faith that for the first time in history has Americans doubting whether our future will be as successful as our past. Many wonder if they must now move elsewhere to regain the freedom and opportunity our ancestors once found by coming here.

Six years ago as a presidential candidate, he said he was about to "fundamentally transform" the United States.

In his January 20, 2015 State of the Union address before Congress, the President recalled his campaign promise to "rebuild our economy on a new foundation," as if the limited government, free market economics, private property and individual liberty and responsibility set forth as America's foundation by our country's Framers is about to be repealed and replaced.

He would, the President said, begin putting forth specific plans for his brave new America two weeks after this speech.

"[W]e don't have the devilish details yet," wrote Forbes Magazine columnist and tax specialist Peter J. Reilly, evoking the old saying that in most such things "the devil is in the details." [3] But a January 17 document from the White House has well-informed Americans seeing red in what we already know.

Three days before the President's 2015 State of the Union speech, the office of the White House Press Secretary issued a "Fact Sheet" that described the President's ideas for "A Simpler, Fairer Tax Code...." [4]

The President's first objective in this paper was to "Close the trust fund loophole...to ensure that the wealthiest Americans pay their fair share on inherited assets."

"Hundreds of billions of dollars escape capital gains taxation each year," this document continued, "because of the 'stepped up' basis loophole that lets the wealthy pass appreciated assets onto their heirs tax-free."

"The President's proposal would close the stepped-up basis loophole by treating bequests and gifts other than to charitable organizations as realization events, like other cases where assets change hands. It would also increase the total top capital gains and dividend rate to 28 percent...."

According to this vague White House document, "No tax would be due on inherited small, family-owned and operated businesses - unless and until the business was sold." It did not specify at what dollar value a "small" business would transform into "large enough to tax," or whether inflation would eventually make all businesses subject to this tax.

Married couples would be granted a combined $200,000 capital gains exemption plus a combined $500,000 exemption for personal residences. In a world of inflation, such dollar amounts could quickly become meaningless, as the people of Weimar, Germany discovered after World War I. Today, after more than a century of inflation, most of us are paying "Progressive" income tax rates that lawmakers once promised would hit only the wealthy.

What this White House document calls a "trust fund loophole" could therefore quickly become a noose for middle-class families trying to pass on their previously-taxed savings, investments and property to their children.

The White House Fact Sheet's proposed loophole closure "is so radical because....It makes death and gifting realization events" subject to potentially-immediate taxation, writes Peter J. Reilly in Forbes. [5]

"President Obama," writes Reilly, "would make death a taxable event."

In January 2015 the Obama White House left no doubt that it is targeting families and intergenerational wealth transfers of the kind found in trusts. It talked openly of imposing hefty taxes on 529 college savings plans, named for the section of the Internal Revenue Service code that allows a tax exemption for such savings.

Taxing these 529 accounts would break the promise politicians had made to savers to help educate their children. It would also break candidate Barack Obama's pledge that families earning less than $200,000 per year would not see their taxes increased "by even a nickel."

President Obama withdrew his plan to retroactively tax these tax-exempt 529 college accounts not because doing so was unethical and unfair, but only because prominent liberals in his own party, including former House Speaker Nancy Pelosi, warned that this would be "politically toxic." [6]

Other savings accounts are already being tapped by more stealthy means, as we documented in The Inflation Deception and other books. As those with bank savings accounts have painfully discovered, the U.S. Treasury and Federal Reserve are following a deliberate policy of "financial repression," holding the interest rate banks pay savers below the rate of real-world inflation.

This policy guarantees that savers are losing the value of their deposits faster than (taxable) bank interest payments increase them. They lose purchasing power every day they have their savings, denominated in paper dollars, in a bank account. And this creates an opening for government to profit by printing more paper dollars out of thin air, a government gain paid for in part by bank saver losses.

Welcome to 2015, where Americans face higher risk than reward by trusting their savings to bank accounts - especially when held in the form of inflating, debased U.S. dollars.

After the Chrysler and GM bankruptcy, how safe are secured corporate bonds? After the Detroit bankruptcy gave a "haircut" to its once-trusting bondholders, how safe are tax-free municipal bonds?

With the stock market yo-yoing wildly from being drunk on Federal Reserve stimulus and artificially-low interest rates, what sober person wants to risk his or her future in this casino of speculators and sharpers while economies around the world, especially in Europe and China, are skidding sideways towards possible recession or worse? [7]

And now, if you have been hardworking, thrifty and lucky enough to have a home and savings and a successful self-made business (oh, wait, the President says "you didn't build that"...that somehow the government, not your family, deserves the profits), our government of cash-starved spendaholic politicians wants to impose yet more death taxes of various kinds on what you leave your children.

In 2008 the two final Democratic presidential candidates, Mr. Obama and Hillary Clinton, met in an ABC televised debate in Philadelphia. Co-anchor Charles Gibson asked now-President Barack Obama about the capital gains tax: Why did the Illinois Senator want to raise this tax, when experience showed that government made more revenue by lowering the tax and less revenue by raising it? (Apparently people take more steps to legally avoid a higher capital gains tax.) And why use a tax that could hit 100 million stock-owning Americans?

Mr. Obama replied that he "would look at raising the capital gains tax for purposes of fairness." [8]

This kind of ideological class warfare - waged not to lift up the poor but to tear down rich investors and free market job-creators, even if doing so costs the government revenue - suggests what we can expect from Mr. Obama's last two years as President.

Where does President Obama get such class warfare ideas? One source is David Kamin, his former Special Assistant for Economic Policy in the White House.

Kamin, now an Assistant Professor at New York University School of Law, on January 5, 2015 published an article that should frighten every successful American. His article lays out some of the same ideas that appeared later that month in the White House "Fact Sheet." Professor Kamin's article - utterly contrary to our Framers' belief in economic liberty; in equal treatment before the law, including tax law; and in small government - is titled "How to Tax the Rich." [9]

No wonder so many people - who used to trust the laws and rules that were supposed to keep their trust fund a safe haven for their children's inheritance - are now feeling uncertainty and fear, and beginning to see that a different, safer haven may be urgently needed to secure their children's future.

Who can protect your family from government guardians greedy for your trust fund and other assets? You can - if you act promptly to get sound information and decisively take a few key prudent precautions. Swiss America knows the ways and has the means to assist you with this.

[1] James Sherk and Todd Zywicki, "Obama's United Auto Workers Bailout," Wall Street Journal, June 13, 2012. URL: http://www.wsj.com/articles/SB10001424052702303768104577462650268680454; Daniel J. Ikenson, "Hard Lessons from the Auto Bailouts," Cato Policy Report, November/December 2009. URL: http://www.cato.org/policy-report/novemberdecember-2009/hard-lessons-auto-bailouts

[2] Avik Roy, "ACA Architect: 'The Stupidity Of The American Voter' Led Us To Hide Obamacare's True Costs From The Public," Forbes, November 10, 2014. URL: http://www.forbes.com/sites/theapothecary/2014/11/10/aca-architect-the-stupidity-of-the-american-voter-led-us-to-hide-obamacares-tax-hikes-and-subsidies-from-the-public/

[3] Peter J. Reilly, "President Obama Would Make Death A Taxable Event," Forbes, January 19, 2015. URL: http://www.forbes.com/sites/peterjreilly/2015/01/19/president-obama-would-make-death-a-taxable-event/

[4] "FACT SHEET: A Simpler, Fairer Tax Code That Responsibly Invests in Middle Class Families," Washington, D.C.: The White House, Office of the Press Secretary, January 17, 2015. URL: http://www.whitehouse.gov/the-press-office/2015/01/17/fact-sheet-simpler-fairer-tax-code-responsibly-invests-middle-class-fami ; Jeanne Sahadi, "Obama Wants to Close the 'Trust Fund Loophole," CNNMoney, January 20, 2015. URL: http://khon2.com/2015/01/20/obama-wants-to-close-the-trust-fund-loophole/

[5] Peter J. Reilly, "President Obama Would Make Death A Taxable Event," Forbes, January 19, 2015. URL: http://www.forbes.com/sites/peterjreilly/2015/01/19/president-obama-would-make-death-a-taxable-event/

[6] Jonathan Weisman, "Obama Relents on Proposal to End '529' College Savings Plans," New York Times, January 27, 2015. URL: http://www.nytimes.com/2015/01/28/us/politics/obama-will-drop-proposal-to-end-529-college-savings-plans.html?_r=0

[7] Ewen Cameron Watt and others, Dealing With Divergence: 2015 Investment Outlook. New York, N.Y.: BlackRock Investment Institute, December 2014. URL: https://www.blackrock.com/corporate/en-us/literature/whitepaper/bii-2015-investment-outlook-us.pdf

[8] "Transcript: Obama and Clinton Debate," ABC News, April 16, 2008. URL: http://abcnews.go.com/Politics/DemocraticDebate/story?id=4670271&page=1&singlePage=true

Here is the referenced passage from this 2008 Hillary Clinton / Barack Obama debate:

ABC News anchor [Charles] GIBSON: "¦.You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent. But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness....

[9] David Kamin, "How to Tax the Rich," Tax Notes, Volume 146 Number 1 (January 5, 2015). To retrieve this eleven-page article via the Internet, go to its Abstract at the Social Science Research Network (SSRN) and click "Download This Paper." URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2550936