Senate Still Obsessed with Tax Hikes
President Obama campaigned in 2008 and again in 2012 on tax hikes for the rich. The rich, he told us constantly, weren’t paying their fair share. But to assure us he meant nothing radical, he also frequently clarified he favored “going back to the tax rates that existed under Bill Clinton.”
Yet less than two months after the president won reelection, the top marginal income tax rate (with the new Obamacare surtax) jumped from 35 percent to 40.5 percent and the capital gains tax rate jumped from 15 percent to 23.8 percent – both higher than the rates ever were under Bill Clinton.:
Democrats in Congress cheered. But were they done? Of course not.
No fair share, it turns out, is ever quite fair enough.
This week Democrats will once again bring their infamous “Fair Share Tax” to the Senate floor.
The bill, authored by Massachusetts liberal Elizabeth Warren, is a $72.5 billion tax hike on individuals (including small businesses that file as individuals) with income above a million dollars. The tax would actually be housed in a new part the Internal Revenue Code called “Fair Share Tax on High-Income Taxpayers.”
Which is weird, because I was told the “fair share” meant Clinton-era tax rates, which have now been exceeded for nearly two years.
This week’s vote will actually be the ninth vote on some version of the “fair share tax” in the past three years. The first three were all styled as “jobs” bills – a cruel irony given the impact of such tax hikes. Two more attempted to hitch a ride on the popular payroll tax holiday, which was ultimately extended without a tax hike on board. They tried it once on its own then tried to tie it to sequestration. This week will be the second time they try to pass the tax hike on the back of student lending changes.
Set aside the debate over whether the federal government should even more heavily subsidize student lending – despite the fact such subsidies have resulted in runaway tuition costs and bloated ranks of lavishly paid educrats.
The real story of this upcoming Senate vote is that the Democrats remain obsessed with raising taxes.
The capital gains tax in particular stands well above Clinton’s 20 percent rate at 23.8 percent and this bill jacks it up to 30 percent – while also creating a huge disincentive for small business owners to cross the million-dollar threshold, depressing employment.
This is particularly misguided because the capital gains tax cut was a stunning success. After Clinton signed it in 1997, lowering the rate from 28 percent to 20 percent, revenues from the tax climbed from $62 billion in 1996 to $110 billion in 1999, while the federal budget moved from deficit to surplus. The Dow rose from 7,000 to 10,000 points in the three years following the rate cut, while the stock of venture capital soared from $10 billion in 1996 to $53 billion in 1999. GDP growth was over 4 percent.
The new 30 percent capital gains rate would be the highest rate since 1978. It would undermine capital formation, investment, productivity growth, and wage growth. The economy contracted last quarter, making it an especially bad time for a nasty new tax hikes on millions of small businesses.
But the “fair share” Democrats can’t help themselves. They think the “fair share” for politicians is as much as they can possibly get their hands on.