- The Washington Times - Sunday, April 20, 2008

In recent weeks, Sens. Hillary Rodham Clinton and Barack Obama have faced sharp questions about their plans to raise taxes and the effect of such increases on a weak economy.

Both candidates have pledged that their tax increases would fall only on people who earn more than $200,000 or $250,000. But some of their increases would fall on taxpayers making much less, and both have voted for Democratic spending plans based on letting all of President Bush’s across-the-board income-tax rate cuts expire in 2010 — reverting to the higher rates of the 1990s.

During Wednesday’s Democratic presidential debate, ABC News’ George Stephanopoulos asked Mrs. Clinton, “If the economy is as weak a year from now as it is today, will you … persist in your plans to roll back President Bush’s tax cuts for wealthier Americans?”

Mrs. Clinton replied that she would raise Mr. Bush’s 35 percent top rate on incomes over $250,000 “to the rates they were paying in the 1990s” under President Clinton, which would lift them to 39.6 percent. “Even if the economy is weak?” Mr. Stephanopoulos asked.

“Yes,” she said. “I do not believe that it will detrimentally affect the economy by doing that … we used that tool during the 1990s to very good effect.”

Business advocates and economic-policy strategists dispute that, saying it isn’t just wealthy Americans who pay the top rate, but also 25.8 million small businesses, many of them family-run, according to the Small Business Administration.

“What Clinton and Obama failed to realize is that small-business entrepreneurs pay that marginal tax rate, and raising it will hurt them and by extension hurt the U.S. economy,” said Cesar Conda, who was Vice President Dick Cheney’s chief domestic adviser.

Mr. Obama’s top tax rate increases were challenged a few weeks ago by economic analyst Maria Bartiromo on CNBC’s “Closing Bell” when she asked him, “Why raise taxes at all in an economic slowdown? Isn’t that going to put a further strain on people?”

“Well, look, there’s no doubt that anything I do is going to be premised on what the economic situation is when I take office,” he said.

But like Mrs. Clinton, a large share of the costs of their sweeping social-welfare proposals require the increased government revenue expected from higher taxes, including the expiration of the Bush tax cuts.

“The budget that the Democrats passed assumes that the tax cuts would disappear in their entirety. They voted to spend that money. They’ve committed that money. Clinton and Obama did not object at the time,” said Grover Norquist, president of Americans for Tax Reform.

Republican leaders said last week that if the Bush tax cuts expire, it would result in raising taxes on workers making “as little as $31,850” a year.

Both candidates have committed themselves to not raising a single tax on middle-class Americans, and both have proposed middle-class tax cuts.

But in last week’s debate, Mr. Obama’s pledge not to raise taxes on anyone earning less than $250,000 was questioned by moderator Charles Gibson, who interrupted the freshman senator to remind him that he wanted to raise the Social Security payroll tax on workers making well below that.

“What I’ve said is that we raise the cap on the payroll tax, because right now millionaires and billionaires don’t have to pay beyond $97,000 a year,” Mr. Obama said.

“But, senator, but that’s a tax … on people under $250,000,” Mr. Gibson said. “There’s a heck of a lot of people between $97,000 and $200,000 and $250,000 if you raise the payroll taxes.”

Tax cutters also point to Mr. Obama’s plan to increase the 15 percent capital-gains tax, which Mr. Conda called “a direct attack on the American investor class, which includes a significant portion of middle-class Americans.”

Mr. Gibson raised that issue early in the debate, noting that if Mr. Obama restored the tax rate to the 28 percent it had been under President Clinton, “that’s almost a doubling.”

Mr. Obama has not specified how high he would raise the capital-gains tax, but said his target was partly the hedge-fund managers who made “huge fortunes on capital gains [who] are paying a lower tax rate than their secretaries. That’s not fair.”

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