Investor's Business Daily, July 30th, 2007
Taxes: Those eager to see investors and entrepreneurs fleeced are eating up the sweet-sounding demagoguery of John Edwards like candy. But taxing "the rich" always kills the jobs of the nonrich they employ.
Former senator and current Democratic presidential candidate Edwards, eager to distinguish himself from front-runners Hillary Clinton and Barack Obama, and appeal to the class warriors in the Democratic Party's base, has proposed nearly doubling the capital gains tax from its current 15% rate up to 28% for those making $250,000 or more.
Edwards says he'll use the supposed waterfall of revenue from such a tax increase to hand out all kinds of goodies to the "Other America" he's always talking about.
They include expanding tax credits on earned income and dependent care, and eliminating taxes on estates valued at less than $4 million.
For those driven by class envy, Edwards provides the ultimate sugar high. Like someone living on sweets, it's all buzz and no nutrition.
"The only way that they are going to give away their power is if we take it away from them," Edwards said of the powerful corporate interests during the recent CNN/YouTube debate.
"And I have been standing up to these people my entire life. I have been fighting them my entire life in courtrooms -- and beating them. If you want real change, you need somebody who's taking these people on and beating them."
The big shots aren't the ones who get beat the worst by the outrageous settlements won by crusading trial lawyers like Edwards was.
Patients who suffer higher medical bills due to malpractice costs, or employees who lose jobs after the firm they work for is crippled by a lawsuit, all somehow get mowed down and forgotten in the liberal Democrats' ambulance race.
Americans for Prosperity, a free market activist group co-directed by former Reagan budget director James C. Miller, retorted to Edwards' plans by pointing out that in the past 26 years, every reduction in the capital gains tax rate has been met by a corresponding spike in investment activity resulting in an increase in federal tax revenues.
On the other hand, Miller noted, "the one time the tax rate has been hiked in recent years, revenues actually declined by 44% over the next three years."
So much for Edwards' plans to pass candy out in the form of narrowly targeted tax credits. If history is any guide, the money he is counting on won't materialize as higher government revenues, especially after a big capital gains increase hits the economy and punishes investors.
Edwards is even talking up President Reagan's agreeing to increase the capital gains tax rates to 28%.
But he neglects to say that the hike only came about as part of a compromise deal that produced the landmark 1986 tax reform act, which cut the top marginal income tax rate to 28%.
What's more, the growth-killing 1986 capital gains tax increase led to a decrease in investment that resulted in 44% fewer revenues over the following three years. So from a fiscal standpoint 20 simply wasn't worth it.
That won't stop Edwards and other class warriors in the Democratic Party from foolishly promoting tax hikes as the way to greater equality.
Pitting classes against one another may be an effective way of getting votes in Democratic primaries, where it seems the lowest common denominator get the highest priority. But as trendy as this process has become, it is one of the most economically destructive developments ever in our nation's political discourse.
Solving problems -- not appealing to crass emotionalism -- is the responsibility of our leaders. In the case of ratcheting up the capital gains rate, the results will likely extend to wrecking the economy.
