Hillary banks on tax plan that didn’t fly before

March 2008

Meet the New Tax – Same as the old tax

Hillary Clinton and Barack Obama both propose to "turn the economy around" in a novel way, claims a recent article by The New York Post’s Alan Reynolds. The plan is to raise tax rates on small businesses, working couples and stockholders in general, including retirees. The problem is this didn’t fly last time. Read on for a summary of facts from this story.

• Of course, the Clinton and Obama plans are also meant to raise revenue for their many hundreds of billions of dollars in new spending – but the move would fall flat on that front, too.
• Start with the deficit. The Bush administration predicts a $409 billion budget shortfall for fiscal 2009. But that prediction rests on absurd assumptions – namely, a sudden $104 billion drop in the price of war in Iraq and Afghanistan, a freeze in non-security discretionary spending - and a simultaneous speeding up of economic growth.
• In fact, this election year's "stimulus" bill is likelier to slow things down in 2009. There is historical precedent here. Seven of the 10 postwar recessions began in the year after a presidential race, including 2001 and 1981.
• So, with luck, the next president may start out with an economy that is only fragile or feeble – and saddled with a deficit not much above $500 billion.
• Now, on to tax hikes.
• The federal government now takes 33 percent of taxable income above $200,000 on a joint return and 35 percent of income above $357,700. Both Democrats would raise those tax rates to 36 percent and 39.6 percent, respectively.
• Even the Tax Policy Center (a think tank famously friendly to tax hikes and Democrats) estimates that raising the top two tax rates might bring in a mere $32 billion in 2010. That's 6 percent of the likely deficit - not a license to start a dozen new federal programs.
• To squeeze a few more pennies from top taxpayers, Clinton and Obama would also phase out all personal exemptions at $250,000.
• That means large families would pay higher taxes than childless couples with the same income.
• Clinton and Obama would also phase out itemized deductions – which would force two-earner families in New York and California to pay more federal tax than those living in Texas and Florida.
• This politically suicidal tax discrimination against New Yorkers, Californians and big families – who wield considerable influence at the ballot box – would bring in only an extra $15 billion a year.
• All in all, these tax hikes add up to, at most, $47 billion a year - only 1.5 percent of federal spending and 0.3 percent of GDP.
• And even that assumes nobody makes the slightest effort to avoid the increased taxes – a dubious assumption at best.
• In reality, many two-earner families would become one-earner families; doctors would play more golf; some folks would quit working long hours and others would retire early. Top-bracket taxpayers would maximize deductions (take out a bigger mortgage, put more in the 401k) and minimize their taxable income by buying municipal bonds or simply spending rather than investing.
• Such tax avoidance alone would cut the estimated revenue windfall expected by Clinton and Obama in half. And the tax hikes' adverse effects on the stock market and the economy would more than eliminate the other half.
• Meanwhile, Clinton and Obama are eager to spend more tens of billions a year on health-insurance subsidies, billions more for biofuels and (in Obama's case, at least) tens of billions more for several more refundable tax credits – checks to people who don't pay income tax. All these shameless vote-buying schemes would only worsen the real budget problem, which is runaway spending – not unduly low taxe rates.
• Thanks to the Bush tax-cuts, marginal tax rates are now much lower than they were in 1993 to 1996 on all incomes, large or small. Tax rates are also much lower on dividends and capital gains. According to liberal Democrat assumptions, such low tax rates should have crippled our economy by now and robbed the government of much-needed revenue. But the opposite is true. The government is literally swimming in revenue. The filings of individual taxpayers brought in 8.5 percent of GDP last year – the same as in 1996 and much more than the revenues gained with the higher tax rates of '93-95.

Get The Full Scoop

The New York Post

TAX DELUSIONS
Obama, Clinton Count on Phantom Cash
By Alan Reynolds

[These links tend to become inactive over time. If this has happened with this link, you can conduct a Google search by clicking here.]

Our Take

We think Hillary got the old adage mixed up: Instead of “If it ain’t broke, don’t fix it” she may have thought it meant “If it’s broke, use it anyway.”

If such a plan – which punishes small business owners and prevents entrepreneurs from creating new businesses and new jobs – if such a plan didn’t fly when Bill and Monica, eh Hilary, were in the Oval Office before, there’s no reason to expect it will fly now.