The Wall Street Journal reported today that there was not much difference on the big issues between the six Democratic candidates for president during their Iowa debate yesterday (on Thursday, December 13). Most distressing, the article noted that all of them agreed that “higher taxes on the rich was the best way to bring the federal deficit to heel.”
That’s extremely distressing. First, for those concerned about the federal budget deficit, it already has been brought to heel. As a share of GDP, the deficit has dropped from 3.6% in 2004 to 1.2% in 2007. That reining in of the deficit is due exclusively to faster economic growth bringing in more government revenues.
Second, higher taxes on the so-called rich is the same old, bankrupt class warfare rhetoric that we’ve heard from too many politicians for too long. It ignores economic reality. For example, it ignores that many upper-income individuals targeted for higher taxes are entrepreneurs and small business owners. So, if you want to discourage entrepreneurship and investment, if you want to hit the bottom line of small businesses, then higher taxes on upper income earners is a good idea. Of course, that’s a bad idea for the economy and jobs.
Class warfare tax policy also ignores that the current economic recovery/expansion shook off its early sluggishness when the pro-growth tax cuts of 2003 were passed, including lower personal income, capital gains and dividend tax rates, and expanded small business expensing.
We do not need talk about raising taxes on anyone right now. To the contrary, the emphasis should be on making the 2001/2003 tax relief measures permanent, and building on them through expanded tax cuts, such as reducing both personal and corporate income tax rates, and indexing capital gains for inflation or eliminating capital gains taxes altogether.