LAMBRO: Remedial economics for Democrats

Raising taxes lowers federal revenue

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It wasn’t long before the Democratic tax-hikers heard from angry, unemployed boat builders who weren’t wealthy, and the taxes were repealed a few years later.

The Obama Democrats are hooked on their need for even more taxes to feed their growing addiction to ever-higher spending. Earlier this year, with strong Democratic support, Congress approved higher income and capital-gains taxes on Americans with incomes of more than $400,000.

The record shows, however, that whenever capital-gains taxes are raised, it brings in less revenue, not more, as investors tend to hold on to stocks and their other assets in order to avoid the larger tax bite. When the rate is cut, they tend to take advantage of the reduction and sell, boosting capital-gains tax revenues.

When President Clinton signed a GOP-passed capital-gains tax cut in 1997, lowering the tax from 28 percent to 20 percent, revenues grew by 18 percent.

“One of the worst things you can tax is capital formation,” says Will McBride, chief economist at the nonpartisan Tax Foundation. “When you increase the capital-gains rate, you increase the tax on using equities to finance investing.”

Raising taxes takes money out of the economy, which, in turn, means slower economic growth that results in higher deficits and more debt.

Mr. Obama and the Democrats are still selling their snake-oil tax remedies, but there are signs that the president is losing the public’s trust on the economy, a Washington Post poll found this week.

He had held a large, 18-percentage point advantage over congressional Republicans on whom Americans trusted more to handle the economy. Now, it’s a nearly even split — 44 percent for the president and 40 percent for the GOP.

The debate over the budget is in its early stages, but the battle lines are tightly drawn on taxes. Mr. Obama has got all the new tax revenue he’s going to get, say House GOP leaders. Any new money must come from tax reform that lowers tax rates to spur stronger economic growth.

Donald Lambro is a syndicated columnist and contributor to The Washington Times.

© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.

About the Author
Donald Lambro

Donald Lambro

Donald Lambro is the chief political correspondent for The Washington Times, the author of five books and a nationally syndicated columnist. His twice-weekly United Feature Syndicate column appears in newspapers across the country, including The Washington Times. He received the Warren Brookes Award For Excellence In Journalism in 1995 and in that same year was the host and co-writer of ...

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