Rangel's Toxic Tax Hike
The heavy hand of government giveth and taketh away - simultaneously.
If enacted, Rangel's proposal would mark the end of pro-growth tax policy.
"This is a betrayal of the legacy of John Kennedy," says Irv DeGraw, a finance professor at St. Petersburg College in Florida. "JFK's tax cuts in the early 1960s drove an unprecedented national expansion. If you think the dollar is weak now, just boost the marginal tax rate and watch jobs go overseas."
Apparently, politicians quickly forget basic economics or believe they're exempted from gravity. After Kennedy's tax cuts, the nation endured President Johnson's massive "Great Society" spending, Nixon's wage and price controls, President Ford's "Whip Inflation Now" buttons and President Carter's cardigan sweater with a dose of "national malaise." President Reagan cut taxes in the early 1980s, launching the greatest economic boom in history.
Rangel's tax plan won't become law before the general election in November. However, a deft Republican nominee can make the case that it's the Democrats' blueprint for economic disaster if they win the White House and retain control of Congress.
This assumes the Republican presidential nominee, unlike President Bush, doesn't speak English like a second language and can tattoo the Democrats for their economic folly.
Rangel, a New York Democrat, talks "tax reform" but even a cursory reading of his proposal screams tax grab that will hammer the economy – and The Little Guy.
The Heritage Foundation, a conservative think tank in Washington, says the plan would:
- Cut the disposable household income by about $30 billion a year from current forecasts.
- Shrink job creation by about 100,000 a year.
- Slow economic growth.
If Rangel's bill is enacted and if Bush tax cuts are repealed, the Heritage Foundation expects the nation's gross domestic product would fall $60 billion, more than one million jobs would be lost in 2013 and an average of 600,000 would be lost each year for the next ten years.
Hey, don't you need a job to pay income taxes? If Rangel's plan kills employment and the economy shrinks, wouldn't tax receipts fall?
In general, Rangel proposes to increase tax rates and offer more deductions, turning upside down President Reagan's 1986 tax reform that included lower tax rates and fewer deductions. One possible theory: Congress exists to carve out exemptions to the tax code for the well connected who, by sheer coincidence, make hefty campaign contributions.
Rangel seeks to boost taxes on upper-middle class citizens and businesses while cutting the Alternative Minimum Tax. Recall that Democrats created the AMT to stick it to "the rich," but it now threatens to take an ever-growing bite out of an estimated 23 million middle class families. Rangel apparently sees this as a political problem rather than bad tax policy. To fix it, he proposes to suck an additional $50 billion out of private equity firms.
The Manhattan Democrat apparently hasn't thought, or doesn't care, what his tax plan would do to private equity's ability to take struggling companies private, punch them into shape, and re-launch them in the equity markets. Fret not, gentle investor, because many IPOs are going to London anyway thanks to Sarbanes-Oxley, Washington's gift to the Brits.
But Rangel isn't finished. He proposes to boost the capital gains tax to 19.6% from 15% while also increasing taxes on dividends. The curious might wonder: Where do hefty capital gains come from if investment choices are limited and the reward for risk-taking is eroded by higher taxes?
Next, Rangel proposes to abolish the AMT and expand tax credits for low income families. This wouldn't be cheap. He would add a 4% income tax surcharge on anyone who earns more than $200,000 a year and a 4.6% surcharge if you make $500,000. Worse, the National Taxpayers Union says, families that would qualify as upper-middle class in some cities would see their tax rates climb as high as 44%, up from the current 35%. Golly, could the Democrats be in the income redistribution business?
Small businesses would continue to receive favorable expensing, but Rangel would require some to pay higher self-employment taxes. He'd cut the corporate tax rate to 30.5% from 35%, but slash business credits and deductions. Moral: The heavy hand of government giveth and taketh away – simultaneously.
Rest assured this would be done in the name of tax "fairness" and, no doubt, "the children." Never mind what the new taxes would do to entrepreneurs and the nation's competitive stance in a global market.
"This bill would put money back in the pockets of millions of New York families and help keep our businesses competitive internationally," Rangel says in a prepared statement. "Because of our high cost of living, New York is one of the states hardest hit by the AMT and my legislation would eliminate this monster once and for all. The bill also provides much-needed relief to hardworking families through an increase in the standard deduction, as well as an increase in the refundable child tax credit so that low-income, working families can receive the same $1,000-per child credit as upper-income families."
Rangel served in the Army from 1948 to 1952. He fought in Korea and earned the Bronze Star and the Purple Heart. He's a lawyer by trade and served as an assistant U.S. attorney for the Southern District of New York before being elected to the state assembly. He's been a member of Congress since 1970.
But Rangel has never run a business. And what he refuses to understand is that tax policy affects people's choices and can twist or stunt the economy. But what the heck, wealth isn't created by investors placing smart bets on what were once unknown companies like Google (GOOG), eBay (EBAY), Microsoft (MSFT) and Intel (INTC) – it simply falls into politicians' fat little hands when they shake the tax tree.
In short, Rangel and the Democrats who endorse his tax plan, have learned nothing from the failures of Franklin Delano Roosevelt's New Deal.
Want to read more? Check out How Democrats Failed to Learn From FDR's New Deal and Race in '08: A First Glance
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