Larry Kudlow

Democrats in Congress and on the presidential trail are intensifying their high-tax war against prosperity and the so-called rich. Their latest salvo includes more tax penalties on successful investors and entrepreneurs, such as a proposed 4.3 percent surtax on high-income earners and a tax assault on the private-equity buyout industry.

The surtax allegedly would raise sufficient revenues to exempt middle-class folks from paying the alternative minimum tax. But the income threshold for this surtax has been alternatively suggested at $500,000, $200,000 or as low as $75,000 to $100,000, depending on the amount of new spending and earmarking envisioned by the Democratic Congress.

Meanwhile, Democrats (and some Republicans) are taking aim at the booming private-equity buyout industry, especially the much-ballyhooed public offering of Steve Schwarzman's Blackstone Group. It seems these buyout guys are just too rich.

Up to now, Blackstone's authoring statement had envisioned some kind of two-tiered tax plan, where ordinary corporate compensation would be taxed at the 35 percent corporate rate, while high-risk investment-fund profits would be taxed at the 15 percent cap-gains rate. But Sens. Max Baucus, D-Mon., and Charles Grassley, R-Iowa, want Blackstone to pay the much higher corporate tax on all its income.

Normal salaries and income from straight-out financial services arguably should be taxed at the corporate rate. But the investment partnerships inside Blackstone constitute risk-taking. For example, if the risks don't pay off with profits, there is no income to be taxed. So, should the Baucus-Grassley plan set up a new multiple tax on capital, it would have negative consequences on economic growth while diminishing the economic clout for risk-taking.

And this is just the start. The next step will be to raise the overall tax on private buyout partnerships, even though there's no intent to go public. Former Clinton Treasury Secretary Robert Rubin suggests more than doubling capital-gains taxes on these partnerships, telling a Washington conference that the lower rate on capital gains hasn't contributed one iota to the economy.

Class envy is behind all this. It's an envy that despises the investment clout of buyout firms, even though these buyouts create leaner, more-productive, more-efficient companies that are better able to compete in the era of globalization. These buyouts are a necessary capitalist churning, but many politicians would prefer the status quo. In particular, labor unions are pushing their Democratic allies to stop the buyout movement in order protect inefficient jobs and oversized benefits.


Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.
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