Taxing logic with levy plan

When John Kerry looked straight into the TV camera in the second debate and promised not to raise taxes on people making under $200,000 a year, many Americans did not believe him.

The Gallup Poll reported last week that even among the middle-income earners of less than $50,000 a year, 44 percent said they believed Mr. Kerry would still raise their taxes. A bigger 55 percent majority among those earning between $50,000 and $100,000 also disbelieve him. The tax-doubters soar to nearly 60 percent among those making more than that.

If President Bush is re-elected, however, 57 percent say they think their taxes would stay the same, 25 percent say they would be increased and 13 percent say they will be cut further.

There are a lot of sound reasons why so many people do not believe Mr. Kerry’s promises on taxes. He has a 20-year record of voting against tax cuts and for tax increases to boost spending. He comes from a state that is nicknamed “Taxachusetts” and was at Gov. Mike Dukakis’ side when he raised taxes on just about every taxpayer.

But the biggest reason to doubt Mr. Kerry’s vow on taxes can be found on his own campaign Web site.

Under his plan on “fiscal responsibility,” Mr. Kerry says he intends to “restore the top two tax brackets to their levels under President Clinton.”

Those tax rates were set at 39.6 percent and 36 percent respectively, until Mr. Bush cut all the marginal tax rates in 2001 — lowering the two highest rates to 35 and 33 percent.

According to the Internal Revenue Service’s 2004 tax rate schedules, the lower of the two top tax brackets applies to single workers earning at least $143,500 and married working couples filing jointly who have a combined income of $174,700 or more.

Thus, a two-earner married couple filing jointly, each making $87,350, could be taxed under the higher tax rate Mr. Kerry proposes if he applied it to the income brackets currently in the IRS tax rate schedule.

But the Massachusetts liberal insists he will apply the higher Clinton tax rates only to those making more than $200,000 a year. That would seem to be a contradiction under the IRS’ long-held income tax brackets.

When I asked Mr. Kerry’s tax policy adviser, Jason Furman, about this, he reiterated Mr. Kerry’s blanket $200,000 pledge without elaboration. But there are other holes in this pledge. What about married couples who file jointly who each make $100,000 a year, but whose entire income would be taxed at the nearly 40 percent marginal rate? I asked him.

Mr. Furman’s answer revealed an ignorance of the demographics of higher-income taxpayers, and hinted Mr. Kerry will have to add provisions and new income brackets to an already horribly complicated tax system to keep his pledge.

“I don’t think there are many married [two-earner] couples that would be in that bracket, but Kerry would design a deduction to ensure that they get to keep the entire tax cut that applies to those under $200,000,” Mr. Furman told me.

Actually, Scott Hodge, who runs the nonpartisan Tax Foundation, says “85 percent of those earning $200,000 a year are married couples and the majority of those are dual-income.”

All this underscores the widely held suspicion Mr. Kerry’s plan will end up taxing more people at lower incomes than he is willing to admit. Indeed, at various times in his campaign he has had different thresholds on who will be taxed under a Kerry regime: “the top 2 percent,” “the top two rates of the Clinton years” and now those making “more than $200,000.”

“Those three standards encompass a greatly differing number of taxpayers and thus they’re going to have a fair amount of wiggle room on who exactly is going to pay higher taxes. That’s very dangerous. Into this void could come lots of bad tax policy,” said John Berthoud, president of the National Taxpayers Union.

But why raise taxes on the people who save and invest the most and who disproportionately provide the bulk of the risk capital to start up new businesses that will create more jobs?

A lot of money is said to be “sitting on the sidelines” on Wall Street in this election because of the higher tax rates a President Kerry would impose on investors, capital gains and stock dividends that would sandbag the economic recovery.

Mr. Kerry answers that he needs more money for the higher levels of spending he proposes and to reduce the deficit.

But thanks to the economic recovery, higher tax revenues are flowing into the U.S. Treasury, cutting a projected $100 billion off the budget deficit. The Congressional Budget Office estimates 2005 revenues will be a whopping 55 percent more than in 1995.

For Mr. Kerry, however, even that is not enough money for his grandiose, big-government dreams. His spending proposals total, at last count, $2.26 trillion in new expenditures. But his soak-the-rich plan will raise “only” $600 billion in new taxes.

Guess who will have to cough up the rest of that money under a Kerry presidency?

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.