- The Washington Times - Thursday, April 24, 2008


Barack Obama and Hillary Clinton are coming under fire from some rather unusual quarters, who are challenging their plans to hike taxes at a time when the economy needs all the stimulus it can get.

And the “R” word — as in redistribution of incomes — is being raised by these critics, too, a political killer in any election cycle, but especially in an economic downturn that is squeezing incomes across the board.

The incoming fire isn’t just from Republican John McCain, who thinks raising taxes in a sick economy is sort of like the 18th century practice of bleeding. Criticism is coming from the news media and from academia.

“Why raise taxes at all in an economic slowdown? Isn’t that going to put a further strain on people?” CNBC economic reporter Maria Bartiromo asked Mr. Obama a few weeks ago. It’s a question that could define the rest of the presidential election and boost GOP prospects at a time when the No. 1 issue is the economy, dwarfing the war in Iraq.

Picking up on Mrs. Bartiromo’s pointed question, ABC News anchors Charlie Gibson and George Stephanopoulos also pummeled both Democratic candidates last week for their tax policies.

“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?” Mr. Stephanopoulos asked Mrs. Clinton.

Mrs.Clinton said, yes, she would raise the top 35 percent marginal tax rate on incomes over $250,000 “to the rates they were paying in the 1990s” under President Clinton, which would lift them to a confiscatory 40 percent.

“Even if the economy is weak?” an incredulous Mr. Stephanopoulos asked.

“Yes,” she replied without hesitation. “I do not believe it will detrimentally affect the economy by doing that.”

But business advocates and economists dispute that claim, saying it isn’t just wealthier Americans who pay the top income tax rate, but also 25.8 million small businesses, many of them family-run operations, who create about 75 percent of the jobs, according to the Small Business Administration.

“What Clinton and Obama fail to realize is that small business entrepreneurs also pay that marginal tax rate and raising it will hurt them and by extension hurt the U.S. economy,” said economic policy strategist Cesar Conda, who was one of Mitt Romney’s campaign advisers.

Sadly, the Democrats’ agenda doesn’t include small businesses who earn over $250,000 but do not consider themselves rich. Many, in fact, are struggling just to keep their heads above water.

Instead, Mrs. Clinton and Mr.Obama are focused on finding more tax revenue from the rich to pay for tax cuts, in Mr. Obama’s case, for people who make less than $75,000.

I dealt in my last column with Mr. Obama’s plan to raise the 15 percent capital gains tax rate, possibly to 25 percent, noting how Charlie Gibson challenged the senator by pointing out that revenues always fall when the tax is raised.

I queried a number of top economists around the country about the freshman senator’s tax plan, and here’s what Glenn Hubbard, the former chairman of the White House Council of Economic Advisers, and now the dean of Columbia University’s Graduate School of Business had to say about it:

“Raising capital [gains] taxes is bad at any time — and particularly in a weak economy. The only argument for such a tax increase — since that argument can be neither economic efficiency or efficient revenue collection — would be a policy of [income] redistribution.”

And that of course is what Mr. Obama has in mind. He would pay for his middle class tax cuts by in part taxing the 100 million-member investor class, 50 percent of whom are the middle class. It is income redistribution by the government, pure and simple.

“They claim they do not want to raise taxes on anyone up to $250,000, but more and more ordinary Americans own stocks through mutual funds, IRAs and 401(k) plans at work. A higher capital gains tax on stock reduces the value of the stock,” said Grover Norquist, president of Americans for Tax Reform.

While Mr. Obama promises in one breath he would not tax anyone below $250,000, with the next breath he says he would raise the $97,000 cap on the Social Security payroll tax to extract money from “millionaires and billionaires” who don’t have to pay beyond that rate.

“But that’s a tax… on people under $250,000,” Mr. Gibson reminded the Harvard graduate. “There’s a heck of a lot of people between $97,000 and $250,000.” Mr. Obama, obviously, had not thought of that.

If that’s not contradictory enough, former Clinton White House adviser Gene Sperling, Mrs. Clinton’s chief economic adviser, said that if the U.S. were still in a recession next year, she would stick to her tax hike plan, while proposing a temporary economic stimulus.

“Her view would be to add another stimulus through more progressive, temporary tax cuts that would have a higher bang for the buck, but she will still revert back to the old top tax rate,” he told me.

That begs the question, in macro-economic terms: Wouldn’t one cancel out the other?

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

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