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Democratic Tax Strategery

Nov 29, 2010, Vol. 16, No. 11 • By MATTHEW CONTINETTI
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What will tax rates be in 2011? The current rates are set to expire at the end of this year, leading to increased taxes on income, capital gains, dividends, and estates. That would be an epic failure, since raising taxes in a weak recovery is the last thing policymakers ought to do. But Congress hasn’t taken any action to stop the coming tax hike, preferring instead to devote its lame duck session to less pressing issues like the DREAM Act immigration amnesty and Don’t Ask, Don’t Tell. Pause and reflect for a moment on the absurdity that businesses, entrepreneurs, financial planners, tax preparers, and taxpayers have no certain idea of what they’ll be expected to pay the IRS come January.

Democratic Tax Strategery

Photo Credit: Newscom

The Democrats, who have controlled Congress for four years and the White House for two, say they want to increase taxes only on households making more than $250,000 a year. Yet they’ve done nothing to make their preferred tax structure a reality. And indeed, many congressional Democrats agree with Republicans that any tax increase in 2011 would be bad for growth.

So what has the congressional leadership done? Rather than accept a bipartisan compromise to extend current tax rates for several years, Nancy Pelosi and Harry Reid have spent the last few weeks scheming to find a way to raise taxes on the wealthy while posturing as defenders of the middle class. We suppose we shouldn’t be surprised that the harmful economic consequences of raising taxes on small businesses and investors are less important to the Democrats than old-school class politics. But it’s disappointing nonetheless—especially in light of the fact that the donkeys have just suffered their biggest drubbing in a midterm election since 1938.

The latest Democratic strategy is to extend current middle class tax rates “permanently” while setting an expiration for upper-income rates, in order to set up a nasty fight somewhere down the line. But this is an empty gesture that smacks of desperation. Republicans in the House and Senate are standing firm against “decoupling,” and it’s likely that more than a few Democrats, senators from red states in particular, will stand with them. Which means that we’re back where we started: an approaching tax increase, an ideological and unresponsive Democratic congressional leadership, and a weak and out-of-touch White House. No wonder Americans have little confidence in the economy. The same team that brought you Obamacare is on a course to produce, through its inaction, the largest tax increase in history.

The president’s handling of this issue is particularly disappointing. Shortly after the election, the White House signaled that it would be open to cooperating with Republicans to keep taxes low. But the administration’s conciliatory language was quickly drowned out by howls from the left. So once again President Obama has deferred to the left-of-center Democrats on Capitol Hill. Has he learned nothing?

Nor is the tax code the only instance in which the president’s economic policies have been ineffective at best and counterproductive at worst. Not only do businesses face uncertainty on taxes, they don’t know for sure how they’ll be affected by Obamacare and the Dodd-Frank financial reform. On the global scene, meanwhile, the administration is playing beggar-thy-neighbor with the American dollar, contributing to uncertainty in currency markets and international trade. Someone needs to sit Obama down in front of the television and make him watch that episode of Seinfeld where Jerry tells George, “If every instinct you have is wrong, then the opposite would have to be right.” Sage advice, Mr. President.

—Matthew Continetti

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