NCPA - National Center for Policy Analysis

TAX WARFARE

July 16, 2007

Congressional Democrats say they want to raise taxes as part of a much bigger effort to redress growing inequality in America.  This is a nightmare not only for American business, but also for workers.  Over time, it will lead to European-style stagnation, with slow growth and high unemployment, says Investor's Business Daily (IBD).

Consider a few things that have been proposed or discussed:

  • Increasing taxes on key U.S. industries, like oil -- Democrats want to boost tax rates on U.S. oil companies to 35 percent from 32 percent.
  • Taxing performance fees for private equity-capital companies at 35 percent instead of 15 percent.
  • Boosting rates on capital gains and dividends to "offset" an expected fix of the alternative minimum tax.
  • Letting President Bush's tax cuts expire -- this will raise tax rates by 10 percent on the wealthiest Americans and a whopping 50 percent on those in the bottom brackets; it also will jack up rates on personal capital gains to 20 percent from the current 15 percent.

They argue that most, if not all, these taxes will be levied on corporations and the so-called rich.  But those taxes are really a tax on the entire economy.  Targeting them hits the rest of us harder than we think, says IBD:

  • A U.S. Treasury study last year found that keeping current capital gains and dividend rates in place would boost GDP by 0.2 percent to 0.3 percent a year.
  • That's $30 billion to $40 billion in added growth; wages, the study implied, would rise by a similar amount.
  • 80 million people, or more than half the work force, own stocks individually or through IRAs and 401(k)s; higher cap gains taxes mean fewer capital gains -- same for dividends.

Source: Editorial, "Tax Warfare," Investor's Business Daily, July 13, 2007.

 

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