THE DEMOCRATIC REVERSAL on taxes has come full circle. Forty years ago, Democratic president John F. Kennedy believed tax increases would neither balance the budget nor create jobs. Kennedy proposed deep cuts in income taxes that were enacted by an overwhelmingly Democratic Congress after his death. In the 1980s, Democratic presidential nominees Walter Mondale and Michael Dukakis had a different tack. Mondale said it was sad but true that federal taxes had to be raised. Dukakis said he might boost taxes, but only as a last resort.
Now all nine Democratic presidential candidates agree that increasing taxes must be a first resort. This is an amazing turn of events. Sure, some would sweep away President Bush's tax cuts in their entirety, and others would preserve the cuts for lower income brackets. But this striking fact remains: While serious candidates like Richard Gephardt and Joe Lieberman don't agree with wacko candidate Dennis Kucinich and demagogue Al Sharpton about much, they're on board with them on taxes. And by the way, so are Democratic congressional leaders.
It's as if Democrats live in a parallel universe where ordinary economic rules don't apply. Although the Bush cuts have helped trigger a roaring economic recovery, Democrats would repeal most or all of them. Howard Dean, the frontrunner for the nomination, would go even further. He would also lift the cap on the Social Security and Medicare payroll taxes, now set at $87,000 of income. The result would be still another tax increase, for employees and employers alike. This
would particularly damage small businesses, the source of most of the new jobs in America. The tax hike mania has seized even Lieberman, the most sensible of the Democrats. He is not content to restore the top rate for individual income, now 35 percent, to its Clinton-era level of 39.6 percent. He would raise it to 44.6 percent. So would General Wesley Clark. This would be nearly as economically counterproductive as Dean's payroll tax increase.
There's a devious aspect to the Democratic tax message. Lieberman, Clark, and the rest have touted their plans as tax reform. Other Democrats, notably Governor Mark Warner of Virginia, have done the same. Their aim is to disguise a huge increase--Virginia's largest ever in Warner's case--as merely a fair-minded restructuring of the tax code. And the press has mostly played along. Warner would raise the sales tax from 4.5 percent to 5.5 percent (while reducing it to 2.5 percent on groceries), boost the top rate from 5.75 percent to 6.25 percent, and increase business taxes. But the Washington Post continues to echo Warner's spin that this is tax reform (see picture).
Sorry, but real tax reform is something different. It has a neutral effect on revenue. It aims to broaden the tax base by reducing rates and eliminating special tax credits, exemptions, and loopholes. And this makes for a simpler, fairer system, leading to a more productive economy. With high rates like the ones Democrats are advocating, the pressure to carve out new loopholes becomes irresistible. Clark's plan, as the Wall Street Journal points out, is actually "reverse tax reform." He would increase taxes on a smaller base.
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