Commentary by Caroline Baum
July 17 (Bloomberg) -- Bill Clinton was in the White House in 1998 when the federal budget went into surplus for the first time in four decades. The budget stayed in the black for the next three years until the Iraq War and the “limited- government” Republicans blew a gaping hole in its side.
Of course, the Clinton budget office never forecast those surpluses. The 1997 reduction in the capital gains tax in conjunction with a stock-market bubble conspired to produce an April tax surprise for several years running.
The surpluses did go a long way toward helping the Democrats shed their label as the party of tax and spend.
President Barack Obama is wasting little time returning his party to its roots.
“He has grand plans and no revenue to pay for them,” says Joe Carson, chief economist at AllianceBernstein.
No revenue? No problem. Taxing the wealthy, and eventually the not-so-wealthy, seems to be the new revenue avenue. In fact, everyone who pays taxes will probably pay more in the near future.
And there’s an increasingly small number that do. An estimated 47 percent of tax filers will pay no income tax in 2009, according to an analysis by the Tax Policy Center. That’s perilously close to a majority. When half the population is on the receiving end of government programs and has no skin in the cost, they will encourage their elected representatives to vote “yes” on every new benefit that comes down the pike.
Universal health care? Slap a surtax on the rich. Exact a penalty fee from companies that don’t provide health insurance to workers. And if the promised cost savings don’t materialize? Just increase the surtax on income and capital gains.
Stakeholders vs. Beneficiaries
What about that aging infrastructure in need of an update? Get businesses to pay for it. A bill introduced in the House of Representatives earlier this week would tax corporate profits to pay for “repairing America’s corroded pipes and overburdened sewer systems,” according to Congressman Earl Blumenauer, Democrat of Oregon, the bill’s chief sponsor. “The $10 billion annual fund will create more than 250,000 jobs.”
That would be in addition to the (fill-in-the-number) million jobs Obama says the $787 billion fiscal stimulus will save or create. (The number keeps changing, which doesn’t really matter since the effect can’t be quantified.)
Blumenauer and his colleagues should read what the Congressional Budget Office has to say about the effect of various proposals on jobs.
‘Play or Pay’
When it comes to health care, employers may pay for insurance, but employees bear the cost -- in the form of lower wages, for example. Imposing “play-or-pay requirements” on employers, as the House’s version of the health-care bill does, could have a negative impact on minimum-wage workers because businesses can’t pass the additional cost along, the CBO says.
Raising the cost of doing business is not an incentive to hire.
“It’s not creating jobs,” says Michael Aronstein, president of Marketfield Asset Management in New York. “It’s not creating businesses. As far as I can tell, there’s not a single thing in the thousands of pages of legislation that would encourage anyone to start or expand a business in the U.S.”
The Bush tax cuts, set to expire in 2010, are supposed to pay for part of cap-and-trade, a plan to cap carbon emissions by creating a market for companies to trade pollution permits. The House of Representatives is floating an array of tax proposals as part of the five-year transportation reauthorization bill, the previous repository of such pork-barrel projects as the “Bridge to Nowhere,” according to Pete Sepp, vice president for communications at Washington’s National Taxpayers Union: things like a mileage tax or gas-guzzler tax.
Redistributing Wealth
Those taxes would fall disproportionately on the poor, which means the Obama administration might have to -- what else? -- soak the rich by selecting only high-end cars as targets.
And to think last year policy makers were worried about the destabilizing effects income inequality could have on society. Aronstein wonders how close we’re getting to a “tax revolt” on the part of those who pay taxes.
The top 1 percent of tax filers, or those with adjusted gross incomes of $389,000 or more, paid 40 percent of the personal income tax in 2006, according to the NTU. The top 50 percent paid 97 percent; the bottom 50 percent paid 3 percent.
And just to make sure the rich don’t catch any kind of break, the White House is still pushing its plan to limit the deductibility of charitable contributions, mortgage interest and other investment expenses.
Highway Robbery
You have to give the president credit for applying gangster Willie Sutton’s apocryphal advice on robbing banks: If you want to raise revenue, go where the money is.
Where the president falls short is in his understanding of the mechanics of job creation. The rich and near-rich who will finance his grand plans are the ones who create the companies that hire the workers.
In less than four years, the voters will get to weigh in on the Democratic Party’s reconnection to its tax-and-spend roots. We know how the beneficiaries of government largess will vote. The only question is whether the taxpaying public will have voted with its feet, leaving the benefits -- and the burden --to others.
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