Retired Army Gen. Wesley Clark, who actually taught economics for several years at West Point, apparently is under the impression that problems besetting the nation’s $11 trillion economy can be solved by increasing taxes and government spending by $50 billion per year for a couple of years. Even if it is not on Dick Gephardt’s grand scale, the plan still qualifies as classic tax-and-spend economic liberalism. It also satisfies the Democrats’ obsession with class warfare by targeting all of the tax increases on families earning more than $200,000 per year.
The effective impact of Mr. Clark’s proposal would be to repeal the income-tax-rate cuts for the upper two brackets. Those rates were lowered in 2001 and 2003 from 39.6 percent and 36 percent to 35 percent and 33 percent, respectively. Even after these rate reductions were implemented, it’s worth recalling, they are still significantly above the top rate of 31 percent that President Bush’s father approved in 1990 and the top rate of 28 percent that emerged from bipartisan tax reform in 1986. Considering the Republican-initiated middle-class tax cuts, moreover, the Bush-engineered income-tax cuts will produce a more progressive tax structure than before.
With his two-year $100 billion tax increase, Mr. Clark would shift $40 billion to profligate state governments, helping to bail them out for the spending binge they pursued before the Clinton stock-market bubble burst.
He also would use up to $20 billion over two years to provide federal subsidies of $5,000 for each new worker companies hired. Here, Mr. Clark’s tax-and-spend plans conflict. After all, many of the nation’s small businesses, which are the source of job growth (given that the total employment of Fortune 500 firms has been declining for years), are organized as so-called Subchapter “S” corporations. In such business enterprises, the profits and losses “pass through” the individual tax returns of the corporations’ shareholders. By repealing the upper-bracket tax-rate cuts, Mr. Clark would be confiscating the small-business profits that would finance job growth. A one-off subsidy for a single year will hardly replace the lost incentive for a Subchapter “S” small business to make a long-term hire.
Finally, Mr. Clark would spend $40 billion over two years on homeland-security measures, including training first-responders, improving hospitals’ abilities to deal with bioterror attacks, and strengthening ports, tunnels and other likely infrastructure targets. All of these projects may well be useful endeavors in their own right as legitimate homeland-security precautions and preparations. And, that is how they should be considered — independent of class-warfare politics and economics. A retired general and economics instructor should be the first person to understand this.