Nobody knows for sure whether Congress will green-light the Democrats’ anti-growth agenda. The hope is that President Bush will veto any tax hike that lands on his desk. But the mere threat that Congress would embark on such a program of wealth destruction and economic impoverishment -- all in the name of taxing “rich people” -- has investors reeling.
Ironically, a lot of today’s anti-cap-gains momentum is the handiwork of former Clinton Treasury secretary Robert Rubin. He actually believes a low cap-gains tax has no economic growth impact at all. However, back when Clinton and Rubin were running things, the personal income-tax rate was lifted from 31 to 40 percent, while the cap-gains tax was reduced from 28 to 20 percent, making for a 20 percentage point tax advantage for cap-gains over regular income. Flashing forward, the current Bush administration lowered the income-tax rate to 35 percent and the cap-gains rate to 15 percent, preserving that 20 percent differential.
Hmm . . . Is Rubin saying the cap-gains tax advantage was good for the Clinton boom, but not the Bush boom?
Truth is, that differential provides a strong incentive for entrepreneurial risk taking and higher-risk, cutting-edge investment -- both of which lend real torque to the economy.
Another unfortunate irony is that while Democrats think they’re striking out at the rich, they’re actually jeopardizing the retirement portfolios of millions of middle-income Americans. Firemen, police officers, and teachers, to name a few, are all represented by the big state and city pension funds. And these funds are heavily invested in the hedge and private-equity funds that the Democratic tax machine is targeting. Is this fact lost on the Democrats? And don’t they realize that two out of every three voters in recent elections owned stocks -- either directly or indirectly? Are they attempting to commit political suicide?
If the Democrats get their way, job creation will be adversely affected, too. Clearly, you can’t create new jobs in the private sector unless there’s a new or expanding business to create those jobs. And since new and expanding businesses require capital for investment funding, if you tax that capital more, you get less investment and fewer jobs.
In short, you can’t have capitalism without capital. The process works for “rich people” and the middle class.
Whenever Democrats wage war against the rich, the middle class becomes the collateral damage. This may be the law of unintended consequences, but it is something this Congress fails to understand.