Why Dean will lose

[jravnsbo]

Take a Hike
Howard Dean wants to raise your taxes, whether you're dead or alive.

The Democratic Party appears to be on an irreversible course to nominate Howard Dean as its candidate for the presidency. Yet while voters in Iowa and New Hampshire may have heard a thing or two about Mr. Dean's economic policies, most Americans have not. Indeed, most voters are unaware that the former governor of Vermont has a plan to raise income taxes on every single American who pays them.

Recently, an organization I run, the Club for Growth, began airing TV ads in Iowa and New Hampshire telling voters about the specifics of Mr. Dean's tax proposals. The Dean plan, our ad notes, would raise taxes by $2,472 a year on a typical middle-income family of four. Mr. Dean would also raise the death tax rate, the capital gains tax rate, the dividend tax rate and the payroll tax, and he would bring back the hated marriage tax penalty that President Bush abolished this year. There is hardly a tax levied at the federal level that Howard Dean would not raise.

And although the Dean campaign has howled in protest over this ad--and has spent hundreds of thousands of dollars to rebut it with TV ads of its own (which mostly change the subject)--what it cannot deny is that these are precisely the economically destructive changes to the tax code we would see under a Howard Dean presidency. In fact, unlike some recent presidential candidates, Mr. Dean doesn't bother to conceal his plans to raise taxes, he revels in telling America about it.

In the ad, we maintain that Mr. Dean's economic agenda is reminiscent of such unforgettable recent Democratic presidential failures as George McGovern, Walter Mondale and Michael Dukakis. We're willing to admit that this may be a bit unfair. In fact, Messrs. McGovern, Mondale and Dukakis might have reason to complain, because none of them proposed economic policies that would tilt the Democratic Party as far to the left as Mr. Dean has.

Mr. Dukakis, who was ridiculed by Republicans mercilessly as a tax and spender from "Taxachusetts," pledged to voters that he would raise taxes "only as a last resort." Mr. Dean promises new taxes as a first resort. And he would raise them on virtually everyone who has a job and an income tax liability--not just on the "evil rich" Wall Street tycoon, but even on the man who shines his shoes. In fact, I recently analyzed IRS tax data released by the Treasury Department to estimate the impact of the Dean tax on family finances. I found that Mr. Dean's plan would force roughly two million low-income working Americans--that's roughly three times the population of the state of Delaware--who don't pay any income taxes now, to start paying them. This is the candidate who says he's going to be the voice of the little guy in Washington.





When it comes to taxes, Mr. Dean thinks really big. In raw numbers, the Dean tax proposal would raise taxes on 109 million Americans by roughly $1.5 trillion over the next 10 years. This comes out to a Dean tax of about $15,440 for every family of four in the U.S. over the next decade. The Dean tax rule of thumb is that if you are in the middle class, he would roughly double your federal income tax payments.
Dean's Greedy Hand
 Current  Dean tax
Capital gains tax 15% 20%
Dividend tax 15% 39.6%
Income tax rate (highest) 35% 39.6%
Income tax rate (middle) 25% 28%
Income tax rate (lowest) 10% 15%
Per child credit 10% 15%
Marriage penalty Eliminated Reinstated
Death tax in 2010 0 55%
Source: Club for Growth
 
Let's look at real-life examples of what the Dean tax might mean for you. Under current law, a married couple with one child and a $40,000-a-year income pays income taxes of $1,503. Under the Dean tax, that family would pay $2,935--or just about double. For a family with two kids and an income of $80,000 a year, the extra Dean tax costs $1,780 a year. What Mr. Dean has never had to answer to in the Democratic primary, perhaps because the other candidates are too embarrassed to ask, is how a presidential contender whose campaign is dedicated to relieving the economic squeeze on working class families, believes that socking these folks with a $1,400- to $1,800-a-year tax hike will make their financial situation less stressful.

Mr. Dean responds to these charges by countering that his plan will help restore prosperity and produce higher incomes and more jobs. But how exactly? His tax plan would be the equivalent of hitting small businessmen, who create about 70% of the jobs, over the head with a two-by-four. The highest tax rate under the Dean plan rises from 35% to 39.6%. Add on top of this perhaps the most insidious feature of the Dean tax. For the first time ever, he would eliminate the cap on payroll taxes. Henceforth, all income of more than $87,000 a year would pay a 15% payroll tax. This means the Dean tax plan raises the small-business tax rate from 38% to 55%. If you are a self-employed worker with an income of $125,000 a year, which in high-cost-of-living states like California and New York is hardly rich, Howard Dean wants to raise your taxes more than $8,000. That will create jobs?

When President Bush cut taxes this past year, one of the most immediately visible happy results was that the dividend and capital gains tax cuts helped boost the stock market by between 10% and 15%. The after-tax rate of return on corporate profits increases with a lower capital gains and dividends tax, so stock values predictably rise. Just since the Bush tax cut, the increased valuation of the stock market has increased the net wealth of American households by more than $1 trillion, according the American Shareholders Association. Repealing those tax cuts would impel the market to surrender those higher share prices. Since half of American households now have their savings stored in stocks, this market give-back also will put a severe dent in family finances. So the Dean tax is a double whammy on households: It reduces their after-tax income and reduces their wealth.

Of course, by reinstating the marriage penalty and bringing back to life the death tax permanently, Mr. Dean's tax proposal would add greatly to the complexity of the tax code. By raising income tax rates by roughly five percentage points on everyone and by calling for a more than doubling of the dividend tax, he sends us back toward the era of punitive double and triple taxation of saving and investment income. In many ways then, the Dean tax is "the anti-flat tax." It gives us higher tax rates and more IRS complexity, and requires several million more families to file IRS 1040 returns every year.

If the Democrats do indeed nominate Mr. Dean and make the Dean tax the underlying economic message of their party, that would be good news for Republicans, but awful news for sound economic policy making in Washington. It will signal once and for all that the Democrats have gone off the deep end on economics and no longer believe a word of John F. Kennedy's message of 40 years ago that higher tax rates "will never produce enough revenues to balance the budget, nor enough jobs" to put Americans back to work.

[Wakie]

Personally I'm in favor of the estate tax (w/ the Feingold Amendment making the first $100 million tax exempt).  Large inheritances lead to the creation of a permanent aristocracy and capitalism begins to break down.  Instead of the smartest and hardest working people rising to the top you get people being slotted based on what group they are born into.

[jravnsbo]

I would listen to proposals on a limit to the death tax.  I am interested inprotecting farms though.  I have seen a lot of people be land rich but cash poor and then when the death tax comes along they have to sell part of the family farm to pay the taxes that has been inthe family for generations.  That is very sad.

Personally I'm in favor of the estate tax (w/ the Feingold Amendment making the first $100 million tax exempt).  Large inheritances lead to the creation of a permanent aristocracy and capitalism begins to break down.  Instead of the smartest and hardest working people rising to the top you get people being slotted based on what group they are born into.

[Wakie]

I would listen to proposals on a limit to the death tax.  I am interested inprotecting farms though.  I have seen a lot of people be land rich but cash poor and then when the death tax comes along they have to sell part of the family farm to pay the taxes that has been inthe family for generations.  That is very sad.

That's what I'm talking about.  When the estate tax came up in Congress Russ Feingold proposed an amendment making the first $100 million tax exempt.  It was shot down by the GOP Congress using the "family farm" argument.  I'm sorry, but if you own a farm that is worth more than $100 million that is no longer a "family farm" it is an agri-corp.

[jravnsbo]

Well teh limits are no where near that now, I think it will be one million ina  couple years, correct me if I'm wrong.

The othr thought though is thatif you ELIMINATE a tax it is much harder to bring it back rather than just raise the rates, that is why I am vehemently againsta  national slaes tax, it may start at 1% but you know it will be raised gradually and soon we'd be like Germany witha 16% VAT or sales tax.

I would listen to proposals on a limit to the death tax.  I am interested inprotecting farms though.  I have seen a lot of people be land rich but cash poor and then when the death tax comes along they have to sell part of the family farm to pay the taxes that has been inthe family for generations.  That is very sad.

That's what I'm talking about.  When the estate tax came up in Congress Russ Feingold proposed an amendment making the first $100 million tax exempt.  It was shot down by the GOP Congress using the "family farm" argument.  I'm sorry, but if you own a farm that is worth more than $100 million that is no longer a "family farm" it is an agri-corp.

[Wakie]

Well, my understanding is that Congress set into motion the repeal of the estate tax.  The current exemption is $1.5 million.  This will go up to $2 million in 2006 and $3.5 million in 2009 and will then be repealed completely in 2010.

It is a bizarre piece of legislation, but then most tax law comes down like that.  It was estimated that the estate tax changes will cost the govt $128 billion before 2010.

All of this said, Congress may find it impossible to support repeal of the estate tax.  The Joint Committee on Taxation scored immediate repeal (vs the current phased approach) of the estate tax as costing $662 billion over 10 years.  Thus, Congress will need to find an offset equal to the cost of estate tax repeal such as increasing income tax marginal tax rates (which were just reduced).

[jravnsbo]

Ok I knew it was on a scale.  

But as I understand it only the phased approach has passed, not the immediate.  Then in 2010 if action is not taken it will go back to the pre-BUsh rates.

There will be efforts to make it permanent but to muy understanding that has not been done yet.

[Gustaf]

Well teh limits are no where near that now, I think it will be one million ina  couple years, correct me if I'm wrong.

The othr thought though is thatif you ELIMINATE a tax it is much harder to bring it back rather than just raise the rates, that is why I am vehemently againsta  national slaes tax, it may start at 1% but you know it will be raised gradually and soon we'd be like Germany witha 16% VAT or sales tax.

I would listen to proposals on a limit to the death tax.  I am interested inprotecting farms though.  I have seen a lot of people be land rich but cash poor and then when the death tax comes along they have to sell part of the family farm to pay the taxes that has been inthe family for generations.  That is very sad.

That's what I'm talking about.  When the estate tax came up in Congress Russ Feingold proposed an amendment making the first $100 million tax exempt.  It was shot down by the GOP Congress using the "family farm" argument.  I'm sorry, but if you own a farm that is worth more than $100 million that is no longer a "family farm" it is an agri-corp.

In Sweden the tax on food went from it's original 4% to 25%!

[jravnsbo]

good example!

Next, Zell wrote how in GA he cut taxes twice and then ELIMINATED the tax on food as it hurts the poor the most.  A democrat cutting taxes, oh whata  dying breed they are.

[Wakie]

The trick to controlling over taxation is to control spending.  Unfortunately every Congressman wants his/her special projects taken care of and the next thing you know we have a huge budget deficit.

[jravnsbo]

I'll agree with that CUT SPENDING!  NEITHER party ever does that.

The trick to controlling over taxation is to control spending.  Unfortunately every Congressman wants his/her special projects taken care of and the next thing you know we have a huge budget deficit.

[StevenNick]

Personally I'm in favor of the estate tax (w/ the Feingold Amendment making the first $100 million tax exempt).  Large inheritances lead to the creation of a permanent aristocracy and capitalism begins to break down.  Instead of the smartest and hardest working people rising to the top you get people being slotted based on what group they are born into.

Whether or not the death tax is a good idea, the question should be "Does the federal government have a right to tax a dead man's income?"  I challenge you to find in the Constitution a single clause or article that would allow for the "estate tax".  There is none.

In fact, the uniformity clause of the first part of Section 8 of the constitution that states "All duties, imposts, and excises shall be uniform throughout the United States" destroys the constitutionality of the estate tax (and the graduated income tax for that matter).  The Equal Protection Clause of the Fourteenth amendment is another part of the constitution that rules out any non-uniform tax throughout the U.S.

[Wakie]

So you want to argue about the constitutionality of any/all non-flat taxes?

It is, I believe, the 16th amendment which states, "The Congress shall have power to lay and collect taxes on incomes,
from whatever source derived, without apportionment among the several
States, and without regard to any census or enumeration."

Although the 16th didn't come into being until later, the first income tax was levied in 1861.  At first, Congress placed a flat 3-percent tax on all incomes over $800 and later modified this principal to include a graduated tax.  Congress repealed the income tax in 1872, but the concept did not disappear.

In 1894, as part of a high tariff bill, Congress enacted a 2-percent tax on income over $4,000.  The tax was almost immediately struck down by a five-to-four decision of the Supreme Court, even though the Court has upheld the constitutionality of the Civil War Tax as recently as 1881.

In 1909 progressives in Congress again attached a provision for an income tax to a tariff bill.  Conservative, hoping to kill the idea for good, proposed a constitutional amendment enacting such a tax; they believed an amendment would never receive ratification by three-fourths of the states.  Much to their surprise, the amendment was ratified by one state legislature after another, and on February 25, 1913, with the certification by Secretary of State Philander C. Knox, the 16th amendment took effect.  Yet in 1913, due to generous exemptions and deductions, less than 1 percent of the population paid income taxes at a rate of only 1% of net income.

If you want to read all about the 16th amendment and related court cases I would refer you to http://www.access.gpo.gov/congress/senate/constitution/amdt16.html

[Gustaf]

I'll agree with that CUT SPENDING!  NEITHER party ever does that.

The trick to controlling over taxation is to control spending.  Unfortunately every Congressman wants his/her special projects taken care of and the next thing you know we have a huge budget deficit.

Well said, and sad but true... That is why politicians should be kept under tight control. You never get really liberal politicians, since their main goal would be to cut their own power and influence and no one wants to do that. At least in Sweden, when politicians are asked why they took up an interest in politics the most common answer is "I wanted to make a difference" or "I wanted to influence society". A liberal would answer "I wanted to decrease politicians influence in society, that's why I became one". Not likely, I'm afraid.