David Cay Johnston’s Examination of Obama Budget Reveals Bias

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February 9, 2015; Al Jazeera

One of the toughest critics of public policy, year in and year out, is Pulitzer Prize-winning journalist David Cay Johnston. In this piece for Al Jazeera, Johnston does what few seemed willing to do in response to President Obama’s proposed FY2016 budget—show the budget’s fundamental biases in favor of big corporations and wealthy people.

Johnston uses two examples. First, he tracks President Obama’s shift from a plan announced in his State of the Union address to tax 529 college tuition investment plans to his abandonment of the idea in the proposed 2016 budget. A 529 account allows people to set aside money for their children’s college educations free of taxes on interest, dividends, and capital gains so long as the money actually goes to tuition. House Speaker John Boehner immediately criticized the president’s SOTU proposal because of his assertion that 529s benefit the middle class. Democrats such as Minority Leader Nancy Pelosi quickly fell behind Boehner’s middle-class argument, leading to the evaporation of the president’s 529 proposal by the time the proposed budget saw the light of day.

Johnston demolishes the Boehner/Pelosi argument, demonstrating 529 plans have “almost nothing to do with middle-class families” but “help those who need help the least, if at all, especially multimillionaires such as the president and first lady, who put $240,000 into 529 plans for their two daughters.” Citing a Treasury Department study from 2009, Johnston reveals that less than one percent of Americans in the bottom half of incomes had 529s, that for those on the 75th percentile of incomes the average 529 plan balance was $8,000, and that “those on the 95th rung and above averaged more than $100,000.”

Comparing them to the mortgage interest deduction, Johnston calls 529 plans an “upside-down subsidy,” providing more benefit to taxpayers with higher incomes.

The other example Johnston uses is the president’s proposal for a 19 percent tax on the previously untaxed foreign earnings of U.S. corporations. As an example of “faux tax reform” in the president’s budget, this idea, Johnston says, amounts to “a 16-percentage-point discount on the tax [corporations] would have paid but for Congress letting these profits become tax-deductible expenses paid to offshore subsidiaries…Obama’s plan would also only benefit multinational companies, advantaging them over purely domestic enterprises.”

“The only matters under discussion,” Johnston says about the tax reform debate implied in the president’s 2016 budget proposals, “are more tax favors that will shift even more of the burden off those with speed-dial access to lawmakers and White House staff and onto ordinary taxpayers.”

Has anyone similarly examined the income or class biases built into components of the budget (or potential legislation that might be enacted this year on tax issues) that directly affect charitable donors and nonprofit recipients, such as support for making the IRA charitable rollover permanent or the opposition to the president’s call for a 28 percent deductibility cap on charitable donations? David Cay Johnston’s journalistic inquiries are old school, focused on asking the question “who benefits” and digging into the faux and real answers. At a minimum, the kinds of questions Johnston is exploring reveal that the newly minted at-long-last progressive budget proposals of President Obama might not be as progressive as they seem.—Rick Cohen