The Magazine

Through the Roof!

Democrats fall in love with taxes again.

Dec 17, 2007, Vol. 13, No. 14 • By STEPHEN MOORE
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It wasn't so long ago that politicians assured voters that they would "raise taxes only as a last resort," as Michael Dukakis put it in 1988. When lawmakers did increase taxes, they would wring their hands and somberly declare how painful and distasteful this decision was. But nowadays in the Democratic party, raising taxes is regarded as a badge of honor and cause for celebration.

Consider the goings-on in Maryland. Three weeks ago Governor Martin O'Malley and the Democratic legislature in Annapolis passed a super-sized $1.3 billion tax increase. The package included higher income taxes, business taxes, sales taxes, computer taxes, tobacco taxes, and gas taxes. Pretty much anything that moves in the state got its taxes upped. It's not just the largest tax hike in the state's history but the first time in the history of the United States that a state has lifted its income tax, sales tax, and business tax all in the same year.

The mood in the state capital after the massive tax package was finally enacted at 2:00 A.M. November 19 was not grim, but joyous. The politicians and the entire House gallery, which was packed with lobbyists who figure to get a good chunk of these tax dollars, erupted in spontaneous and prolonged applause. The applause soon turned into a back-slapping standing ovation. One observer noted, "You would have thought the Baltimore Orioles had just won the World Series." O'Malley had a grin on his face as large as the Baltimore harbor as he raised his arms in triumph at the bill signing ceremony. E.J. Dionne of the Washington Post serenaded O'Malley as a Democrat who isn't afraid of big government or raising taxes to fund it.

O'Malley is among a group of rising star Democrats in state capitals that seem to relish the opportunity to raise taxes--and not just on the rich. In Wisconsin, Governor Jim Doyle pushed a "universal" health care plan paid for with a 10 percent payroll tax surcharge levied on every working man and woman in the state. The measure would have made Milwaukee and Green Bay not just the highest-tax cities in the United States, but just about anywhere in the world outside of Sweden. Doyle is considered a "moderate" in the 21st-century Democratic party.

Then there is the glamorous Michigan governor, Jennifer Granholm--who raised business and income taxes this year despite polls showing intense opposition. Granholm fought doggedly for the tax package, even telling a statewide television audience that she would shut the government down in Lansing if she didn't get her infusion of cash from taxpayers. Michigan was the only state in the nation last year suffering a recession, and the state's unemployment rate is highest in the nation, so new taxes couldn't have come at a more inopportune time. But Granholm is convinced that raising business taxes in Michigan is an "investment" and that the higher costs for doing business will somehow lure more companies to her state. A darling of liberals, Granholm would be high on the Democrats' vice presidential list if only she hadn't been born in Canada.

Meanwhile, the Democrats who are running for president are in a feud over who's willing to raise the most taxes next year. Hillary Clinton qualifies as the "centrist" of the crew, because she only wants to raise the capital gains, dividend, and income tax rates. That pales in comparison to John Edwards: He's proposed a repeal of all the Bush tax cuts, new taxes on Wall Street investment houses, and a capital gains rate of 28 percent--higher even than when Bill Clinton left office. But the grand prize winner of the soak-the-rich contest is Senator Barack Obama, who also wants to extend the 15 percent Social Security payroll tax on all Americans earning over either $100,000 or $200,000--the details are still sketchy.

Former Bush administration chief economist Larry Lindsey notes that the Obama plan would raise marginal tax rates for many Americans higher than what prevailed under Jimmy Carter. For advocating a return to the tax rates of the stagflation era, Obama earns the accolade of being the "real progressive," according to liberal pundits.

If any of these Democrats were to win the White House, they wouldn't encounter much if any resistance from House speaker Nancy Pelosi or Senate majority leader Harry Reid. Last month the Democrats in the House--even many of the so-called moderate "blue dog" Democrats--approved the one-year down payment on Ways and Means Committee chairman Charlie Rangel's $1 trillion "mother of all tax increases." The tax hike the House approved would save the middle class from the Alternative Minimum Tax by raising taxes on Wall Street hedge fund managers. But this doesn't mean that only the rich will be gored: House and Senate Democrats have also approved a doubling of the federal cigarette tax--the levy that probably falls most heavily disproportionately on the backs of the poor and working class.

Why have Democrats suddenly become so overt and emboldened in their tax raising schemes? One explanation is that Democratic leaders have come to believe that taxes are no longer the radioactive issue with voters that they were in the 1980s and '90s. Maryland's O'Malley ridicules his conservative "no new taxes" critics and insists that "taxes are not a pestilence, plague, or disease."

With Republicans' poll numbers in the dumpster, liberals have come to interpret voter disgust with the GOP as a validation of their own old-school tax-and-spend mode of governance. Most of the Democrats' tax actions are disguised as hitting only the wealthiest few, who, as Obama puts it, "can afford to pay more." Democrats may well strike a populist chord with that theme, especially in a time of high economic anxieties, but the strategy is risky.

GOP pollster David Winston has been testing these propositions, and he finds that when "Democrats say tax the rich, most voters think their own taxes will go up." Winston's polling also shows the electorate thinks raising taxes when the economy is heading into a potential recession would be a nightmare. Evidence of the potential for a political backlash over higher taxes comes from Indianapolis, where just last month voters unexpectedly threw out a once-popular Democratic mayor in favor of a low-profile Republican with no money, no charisma, and no name recognition. Why? Voters were furious at a city-wide property tax hike last year.

In a 1988 Saturday Night Live skit called "Dukakis after Dark," Lloyd Bentsen asks Dukakis, "You were going to raise taxes, weren't you?" Dukakis shiftily looks around to make sure no one is listening and whispers: "Through the roof." How times have changed! Now Democrats are exposing their tax giddiness enthusiastically and in the light of day. It may be the ailing GOP's best chance for a comeback next year. Republican congressman Mike Pence of Indiana refers to the Rangel tax hike as "the Democrats' gift that just keeps giving." Then he adds: "The liberals in that party just can't control themselves. They keep proposing one new tax after another."

He's right, and some Democrats are fuming privately that the party continues to adopt the Mondale strategy of pledging to raise taxes, which won Fritz exactly one state (plus the District of Columbia) in 1984. The 2008 presidential election will be much more competitive. But if Republicans eke out a victory, they may have to thank all those Democrats who became "unafraid" to raise taxes.

Stephen Moore is senior economics writer for the Wall Street Journal editorial page.

Correction

This article incorrectly attributed to Wisconsin governor Jim Doyle support for a universal health care plan paid for with a payroll tax surcharge. The plan was backed by the state's Senate Democrats but not by the governor.