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March 07, 2006,
8:57 a.m. Americans do not want higher taxes. That might seem obvious, but perhaps not to our elected representatives in the U.S. Senate, where 47 senators recently voted for huge tax hikes on capital gains and dividend income. Many in Congress also want to hike income taxes for millions of American families by eliminating the 10 percent bracket, reinstituting the marriage tax penalty, slashing the child credit, and raising marginal income-tax rates across the board.
The Free Enterprise Fund recently commissioned a poll, conducted by McLaughlin & Associates, that asked whether Congress should act to prevent impending tax hikes. Sixty-seven percent of Americans said it should. More, contrary to the inside-the-beltway perception that this is a partisan issue, a robust 59 percent of Democrats supported congressional action to prevent tax rates from increasing. Most Democrats in Congress are ignoring the two-thirds of their constituents who want tax rates to stay where they are, voting consistently to raise taxes and using the procedural mechanism of the filibuster to keep automatic rate hikes looming over American taxpayers. We’re in this situation because Democratic filibusters forced Republicans to pass most of the current tax policies under a process called budget reconciliation. Using reconciliation as a vehicle, a law can pass the Senate with just a simple majority, protected from a filibuster. But laws passed by that route cannot be permanent; they expire at the end of the budget window, which is typically five or ten years. The current tax rates, on dividends and capital gains, in particular, but also regular income taxes, have been a stunning success, driving a robust economic recovery and pushing unemployment levels down to historic lows. Unfortunately, unless Congress acts, the following will occur: Small businesses will be hit with a tax increase on their capital expenditures, raising their cost of capital and hampering innovation and entrepreneurship. The tax rate on capital gains will increase 33 percent, destroying trillions of dollars of shareholder wealth and slamming the brakes on economic growth. The tax rate on dividends will increase by a staggering 133 percent, making companies less accountable to investors and creating strong incentives for businesses to inefficiently hoard cash. The dividend tax hike will be particularly onerous for seniors — many of whom, Congress should be reminded, are likely voters — who rely on dividend income. Finally, individual income-tax rates will be increased, with the top rate rising by over 13 percent. This will create a disincentive to work and produce. If that’s not bad enough, it is important to understand that even the uncertainty created by the possibility that these tax hikes will occur could be enough to undermine investor confidence, reverse the stock market recovery, and derail economic growth. Predictability is the mother of business confidence. If there is an expectation that these tax hikes will be enacted, the cost of capital could increase enough to send the economy into a tailspin. The White House and Congress need to recognize that keeping the good economic times rolling requires action to prevent scheduled tax hikes. This is not a partisan issue — overwhelming majorities of voters in both parties are calling for Congress to act. Conferees are meeting this week to hammer out differences between House and Senate versions of the long-delayed 2005 edition of tax reconciliation. Because the budget used a five-year window, the best the conferees can do is extend current tax policies through 2010. They should do so. — Mallory Factor is chairman of the Free Enterprise Fund. * * * YOU’RE NOT A SUBSCRIBER TO NATIONAL REVIEW? Sign up right now! It’s easy: Subscribe to National Review here, or to the digital version of the magazine here. You can even order a subscription as a gift: print or digital! |
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